[LIBRARY UNIVCHiiiTY Of CALt ORNM SAN DIEGO j The Books mentioned in this Circular are for sale by THE WESTERN METHODIST BOOK CONCERN, CHICAGO, ILL. J - / (?, <-^oc e^sc J / ~ f . a: ft. lElg's The Labor Movement in America $1.50 Taxation in American States and Cities . . . 1.75 Problems of To-day 1.50 Social Aspects of Christianity 90 Socialism and Social Reform 1.50 T. Y. CROWELL & CO., New York. French and German Socialism in Modern Times, .75 HARPER & BROS., New York. An Introduction to Political Economy .... 1.00 Outlines of Economics (College Edition) . . 1.25 HUNT &. EATON, New York. PROBLEMS OF TO-DAY A DISCUSSION PROTECTIVE TARIFFS, TAXATION, AND MONOPOLIES BY RICHARD T. ELY, PH.D., LL.D. PROFESSOR OF POLITICAL ECONOMY AND DIRECTOB OF THE SrHOOl OF ECONOMICS, POLITICAL SCIENCE AND HISTORY, IN THE UNIVERSITY OF WISCONSIN. NEW EDITION REVISED AND GREATLY ENLARGED. SIXTH THOUSAND. NEW YORK : 46 EAST 14- STREET THOMAS Y. CROWELL & COMPANY BOSTON : 100 PURCHASE STREET Copyright 6y THOMAS Y. CROWELL & CO., 1888. TYPOGRAPHY BY J. S. GUSHING & Co., BOSTOK. PREFACE TO THE THIRD EDITION. THE present edition of the Problems of To-Day con- tains three new papers, which I have placed together and called Part II. As each of these papers was originally prepared for a special occasion, and as they deal with re- lated topics, a certain amount of repetition was inevitable. I have, however, made no effort to remedy this, because I regard it as an advantage, in a popular economic work like the present. My experience as a teacher and a writer shows me that it is necessary to come back, again and again, to simple principles, and view them from many standpoints, before they can be fully grasped by those who are not trained economists. RICHARD T. ELY. JOHNS HOPKINS UNIVERSITY, BALTIMORE, January, 1890. PREFACE. THE present work consists of a series of papers written originally for the Baltimore Sun, and only slightly re- vised and enlarged for republication. When I began my articles for the Sun I had no thought of gathering them together in book-form, and it is only after long hesitation that in response to requests from many people in different parts of the country I have consented to do so. Did I have sufficient time to subject the articles to a thorough revision, there would be less cause for my hesitation, but I have not the requisite time at present. Every one knows the conditions under which articles are written for a popular newspaper. They must appeal to " all sorts and conditions of men," to the bank president and merchant prince as well as to the artisan, to the mechanic, and to the unskilled day-laborer. The space to which one is entitled limits the length of an article quite as much as the nature of the subject. An occurrence like the death of the late German Emperor, having no possible connection with the topics discussed in this volume, will nevertheless cut short a newspaper article on tariffs or monopolies. The chapters in this book, then, are not so rounded out and complete as they would have PREFACE, vii been if originally intended for publication in book-form. On the other hand, I have been advised that there is a certain advantage in the form which these papers have taken, and that it would be of doubtful utility to rewrite them. Some of my learned friends may think that a university professor ought not to write anything quite so popular in form and style as this work. Perhaps they will say that I ought to have placed over these remarks the title "An Apology." It seems to me, however, that this implies a mistaken view of the functions of our higher institutions of learning, for I believe that to an ever-increasing extent they ought to assume a democratic character, to attempt more than ever before to elevate the masses, and to guide and direct their thought. I believe, moreover, that such ex- perience as we have warrants us in thinking that this sort of effort will react on these institutions themselves and im- prove them in many respects. The only air congenial to the highest intellectual life is true democracy which is the same thing as true aristocracy. However, I will frankly confess what finally decided me to publish these papers in book-form, for in so doing, I shall best explain my purpose. On one day I received letters from three college presidents, each of whom spoke of my Sun articles in the most gratifying terms. On another day I learned that nearly all the employes of one of the largest corporations in Baltimore read the articles as they appeared, and invariably discussed them during their dinner-hour. viii PREFACE. When I was further informed that, inconvenient as news- papers are for such purposes, the articles were being used in two college class-rooms, I felt warranted in republishing the articles even without a thorough-going revision. My thanks are due to the Baltimore Sun for consenting to the present use of these articles. RICHARD T. ELY- JOHNS HOPKINS UNIVERSITY, BALTIMORE, May, 1888. TABLE OF CONTENTS. PART I. CHAPTER PAGI I. INTRODUCTORY i II. DIRECT AND INDIRECT TAXATION CONTRASTED ... 6 (III. REMARKS ON THE PRINCIPLES OF A SOUND SYSTEM OF FEDERAL FINANCIERING 14 IV. THE NATURE AND PURPOSE OF COMMERCE .... 22 V. THE BALANCE OF TRADE THEORY 28 VI. FURTHER CONSIDERATION OF THE BALANCE OF TRADE THEORY . . . 33 / VII. THE EARLIEST TARIFF LEGISLATION IN THE UNITED STATES 39 VIII. THE GROWTH OF PROTECTIONISM 46 / IX. INFANT INDUSTRIES IN THE UNITED STATES IN 1816 52 X. THE INFANT INDUSTRY THEORY OF PROTECTIONISM FURTHER CONSIDERED 59 / XI. PROTECTIONISM AND LABOR 67 XII. TRUE PROTECTION TO AMERICAN LABOR 73 XIII. AMERICAN LABOR NEEDS NO SUBSIDY 79 XIV. THE IMPORTANCE OF A WIDE DIFFUSION OF ECONOMIC KNOWLEDGE, WITH A FEW INCIDENTAL REMARKS CONCERNING A GOVERNMENT TELEGRAPH .... 87 ' XV. THE SEEN AND THE UNSEEN 93 X CONTENTS. CHAPTER fAGB / XVL THE BASIS OF THE CLAIMS OF POLITICAL ECONOMISTS 99 XVIL THE DIFFERENT KINDS OF MONOPOLIES WITH SOME REMARKS ON THE LAND QUESTION 107 XVIII. NATURAL MONOPOLIES AND COMPETITION .... 114 | / XIX. NATURAL MONOPOLIES FURTHER ELUCIDATED. . . 120 V. XX. THE PROPER METHOD OF DEALING WITH GAS SUPPLY AND STREET RAILROADS 127 1 XXI. WATER SUPPLY AND ELECTRIC LIGHTS 134 XXII. WAR AND CONSOLIDATION THE RESULT OF RAIL- ROAD COMPETITION 140 ? XXIII. PUBLIC ROADS AND CANALS 147 XXIV. THE FORCES PRODUCTIVE OF MUNICIPAL GREATNESS, DISCUSSED WITH REFERENCE TO THE FUTURE OF BALTIMORE . . 157 XXV. BAD TAXES BLIGHT A CITY'S GROWTH 163 > XXVI. A PLAN WHEREBY TAXES MAY BE REDUCED IN CITIES 165 XXVII. THE FUTURE OF BALTIMORE FURTHER DISCUSSED . 17? XXVIII. OUR FUTURE RAILROAD POLICY ......... 189 XXIX. THE INNOCENT SHAREHOLDER 195 r XXX. THE DEPENDENCE OF ARTIFICIAL MONOPOLIES ON NATURAL MONOPOLIES 200 , XXXI. GOVERNMENT BY SPECIAL INTERESTS .... 210 PART II. THE NEEDS OF THE CITY 227 (NATURAL MONOPOLIES 251 ; THE TELEGRAPH MONOPOLY 277 PART 1. PROBLEMS OF TO-DAY. CHAPTER I. INTRODUCTORY. I HAVE been asked to write a series of articles on various problems of the day, some of them relating to national life, others to state affairs and still others to our own city. It gives me pleasure to comply with this request. It is well that the reader should at once understand the character of this proposed series of articles, of which the present is the opening one. First, then, it must be borne in mind that an exhaustive treatment of the subjects dis-^^ cussed cannot be expected^ that such a treatment is not contemplated, for the topics are too large to admit of it even with the generous limits allowed me by The Sun. I intend rather to elucidate certain elementary principles in the sim- Q, plest language at my command, ancTto make a few sugges- tions in regard to such questions as the nature of commerce, the balance of trade theory, the policy of protection, its con- nection with monopoly and its bearing on the welfare of labor, the treasury surplus, taxation in state and city, and natural monopolies. I shall not play the part of an advo- cate and say certain things merely because they are calcu- lated to produce an effect or annoy an adherent of opposing views ; rather, I shall endeavor to help my readers to get at 2 PROBLEMS OF TO-DAY. the truth about many vexed questions which are much ob- scured by partisan controversy. Few statistics will be used, because statistics both as a science and an art is still in an unsatisfactory condition, and the data it furnishes are largely unreliable ; further, because " nothing lies like figures " in other words, it requires a trained mind to pass judgment on statistical arguments, and it is very easy, by a sort o/ hocus pocus, to make statistics prove whatever you please. It is particularly easy to prove what you please, with statistics in respect to international trade, for our statistical knowledge is at present so imperfect, that it gives us com- paratively little assistance in discussions concerning the con- sequences of restrictions on the movements of commerce or of the removal of such restrictions. Statistical informa- tion is of more value than anything else even now in discus- sions on some topics of the day, like municipal public works ; " . but they are not usually so complicated and so many classes of facts are not involved^ It may be on this account that those political economists who have begun their serious studies with an examination of the principles and practices of protectionism, or who have been led to devote themselves to political economy on account of their interest in contro- versies respecting free trade and protection, have often re- pudiated altogether the statistical and historical method in practical economy, and have cultivated exclusively abstract and deductive reasoning. They have thus fallen into gross error in other fields of political economy than commerce, and have brought discreditjurjotL theirjscience. While de- ductive reasoning seems especially applicable to the subject of internationaHrade, and while statistics are imperfect and must be used with caution, every aid which statistics can give must be warmly welcomed. Let us take as an example of fallacies in statistics one INTKOD UCTOR Y. 3 which has carried great weight with it. I refer to the argu- ment about our increase in wealth and its connection with a protective tariff, in Mr. James G. Elaine's celebrated letter in which he accepted the nomination to the presidency of the United States. Mr. Elaine states that the wealth of the United States in 1860 amounted to $14,000,000,000; that "after 1860 the business of the country was encouraged and developed by a protective tariff," and that at the end of twejity^years the valuation of our property had increased to the enormous aggregate of $44,000,000,000. An Eng- lishman, however, immediately comes forward with a state- ment to show that there has been an equally marvellous increase in national wealth in his country since 1846, when free-trade principles were introduced, and he attributes this prosperity to the policy of free trade. Both are wrong, though their arguments are plausible. While I was walking down Baltimore Street yesterday, a merchant sold ten thou- sand^ dollars' worth of goods. The two events happened together, but was one the cause of the other? Manifestly you want some other proof than the fact that the two events were contemporaneous. It is equally necessary to ask, both in the case of Great Britain and the United States, what other forces besides tariff laws were at work to increase the wealth of each nation, and merely to ask this question shows that these laws, whether -wise or unwise, after all played only a minor role. The opening up of new terri- tories, the improved means of communication and transpor- tation, the further applicaticm of steam to industry, a host of new inventions and discoveries, accompanied by a popu- lation rapidly growing in numbers and increasing in intelli- gence and skill, these evidently are the main causes of the augmented national wealth of the United States ; and whether the doctrine of protection is true or false, the tariff, 4 PROBLEMS OF TO-DAY. after all, was only one factor, and a minor one at that. But let us examine this statistical argument more at length. Forty-four billions ! That is truly an enormous sum, but how much of that have you, my reader? Have you more than you want ? How many of us, in fact, have enough to satisfy our rational wants? How many of us could advan- tageously expend more than we have in food, clothing, im- proved dwellings, books, music, travel, wholesome recrea- tion ? Certainly most people in my circle of acquaintance ; and the question may well be raised whether what we have as a nation is desirably distributed, and whether certain alarming tendencies to concentration of wealth and monop- oly in business are wholly unconnected with our tariff legis- lation. Many more similar questions are pertinent, but they will not be raised in this place. It is hoped that what has been said will suffice to show the necessity j)f caution in the acceptance of alleged statistical proof. Statistics are useful, and the formation of an International Statistical In- stitute to imprpve_jtatistics, both as a science and an art, is to be hailed with unqualified satisfaction, but the place of figures in a series of papers like this is limited. It is pro- posed rather to base what is said on facts which can be observed by everybody, and mi principles of common sense and well-attested experience. The subject of national revenue is the first to occupy our attention, because nearly all national problems involve sooner or later questions of national finance. There are various sources of revenue, as land, productive enterprises. loans and taxation, and some local and central governments defray a large portion of their expenditures by profits on certain lines of business entrusted to them. Berlin, for ex- ample, meets more than eighteen per cent of its expenses from the net revenues of its gas-works, although gas is sold INTR OD UCTOR Y. 5 below one dollar a thousand ; the profits on state railways in the various German states more than cover the interest charges on their public debts, and four of the German states, Baden, Bavaria, Prussia, and Saxony, provide for over half their budgets by returns on enterprises of one kind and another. fttcA^ Richmond, Virginia, and a few other American cities derive profits from gas-works. The revenues of the gas-works of Philadelphia, for example, amounted to nearly three millions ofdollars in 1887, out of a total municipal income of $17,- 584,255.71. Our federal government, however, is almost exclusively dependent upon taxes. But it must be remem- bered that taxes are of two kinds, direct and indirect, the former_on property and inpome, the latter on commodities. The taxes imposed upon us by the federal government are, however, exclusively indirect taxes. We have then to ask this question What are the peculiar features of indirect taxation in general, and what special characteristics pertain to indirect taxation in the United States? An attempt will be made to answer this question in the following chapter. CHAPTER II. DIRECT AND INDIRECT TAXATION CONTRASTED. 1 INDIRECT taxes are chiefly taxes on commodities ; in other words, taxes on what we eat and wear and con- sume in other ways, or on raw materials and implements used in manufacturing goods for purposes of consumption. They are called indirect taxes because they are usually paid in the first instance by one person and shifted by him to another. The importer of salt, sugar, and coal, pays taxes on these commodities when they enter the territory of the United States,- adds them to the price of his commodities, sells them to some one else, perhaps a wholesale dealer, who in turn disposes of them to a "retailer, having added the tax and a profit on the money which he advanced in payment of the tax. The retailer finally sells them to you and me, but by this time the tax has been turned over several times and has grown like a snowball rolling down hill. To the retailer the tax has become an indistinguishable part of the price which he pays, and on which he must derive a profit from us, the consumers. Thus indirect taxes roll up, and roll up every time one person shifts them upon another, until finally the augmented burden rests upon the shoulder of the taxpayer. An indirect tax is thus a tax which vio- 1 A large part of this chapter has been printed in my " Taxation in American States and Cities." The difference, however, between this chapter and the one bearing a similar title in the other book, is too great to allow me to call it simply a quotation. >upf -^rCL*-0^^_ DIRECT AND INDIRECT TAXATION. lates one of the celebrated four canons of taxauonTfor itf ,&- takes from the pockets of the taxpayer far more than it puts into the public treasury. It is a wasteful kind of taxation. This is not mere theory. It is a fact of which any one can satisfy himself by conversation with intelligent merchants who understand the operations in which they are engaged. INDIRECT TAXES VIOLATE THE PRINCIPLE OF EQUALITY. Another accepted canon of taxation is that its amount should be measured in each case by^ Ability or the revenue which a citizen of the commonwealth enjoys. This is what is called equality of taxation. Government should exact equality of sacrifice of us all. An income tax honestly assessed and honestly collected, meets the re- quirements of this canon. How does the case stand with indirect taxation ? This is taxation of consumption ; but does consumption of taxed commodities vary with income? We import salt and tax it nearly fifty per cent, of its value. Does the rich man consume more salt than the poor man? Do you increase the amount of salt in your soup with an improvement in your financial condition? It is said that, on the contrary, the amount of salt consumed by the poor man is greater than that consumed by the rich man, because the latter uses other condiments, while salt is often the only seasoning the former enjoys. We have in a tax like this what is called a regressive^tax, a tax which increases as income decreases the worst kind of a tax and the most unjust. The tax on sugar is over seventy-five per cent, on value, and from it a large part of our revenue is derived. It is similar in principle, although there is a difference in rates according to value of sugar, so that higher grades pay more, and it is true that people of large means consume fi /Of 8 PROBLEMS OF TO-DAY. more than poor people. But the difference in rate and in quantities consumed by no means corresponds to differences in incomes. It may be doubted whether a man with ten thousand a year consumes less than one with fifteen thou- sand, and he certainly does not consume an inferior quality of sugar. A man with two hundred thousand a year will not consume twenty times as much as one with two thou- sand a year, much less will he consume one hundred times as much. Here we still have the regressive tax. But take even taxes on imrjprted silks, which yield fifteen millions a year, and appear to be among the fairest oF"Tndirect taxes. The rate is almost fifty per cent. Silk can hardly be called an article of superfluous luxury at the present time, and a lawyer who supports a family on three thousand a year is taxed out of all proportion, higher than the plutocrat whose income is three hundred thousand dollars. It is needless to continue illustrations. With the progress of democratic thought, the idea of progressive taxation meets rightly or wrongly, that need not be discussed here with increasing favor, and some of the states where the principles of democ- racy are carried farther than anywhere else in the world, the Swiss cantons, have recently introduced progressive taxes on property and on income, but our federal govern- ment relies wholly on a system of regressivejaxation ! One would think this in itself would be sufficient to check the ardorof protectionists who are at the same time working- men ; but this is by no means the whole story. Take up any treatise on taxation and read the arguments in favor of indirect taxation, and what is the first Jhing to attract your attention ? It is, that with the present calls upon civilized gov- ernments, and with the unwillingness of people to pay direct taxes, and the resistance which men of means offer to high direct taxes levied in proportion to income, it is practically &{JUr. 60 DIRECT AND INDIRECT TAXATION. 9 impossible to maintain the modern government without large contributions from people of limited resources, and the only way to tax them is by indirect methods ; in other words, mingling taxes with prices paid, so that goods can- - not be bought without paying taxes. It is, too, worthy of notice that the English system of indirect taxation, which we have inherited, originated in the corrupt reign of Charles II., about -two hundred years ago. Then the burden of govern- ^ ment (rested upon the land held by feudal tenure, but the j Parliament of Charles'*!!., " by a majority of two only, divested the landed gentry of all their feudal obligations to the crown without touching their privileges, and as compen- sation to the state imposed an excise duty upon beer^ spirits, wine, tobacco, and numerous other articles. ... It marked the dawn of our modern system of indirect taxation ; and the emancipation of the aristocracy from special burdens on land thus accomplished, helped to alter the whole current of our later fiscal history." These are the words of an English writer on finance. Perhaps one of the best^tests of the true character of a government is the nature of its system of taxation. If we turn to Russia we shall find there taxes such as we might . naturally expect under a modern despotism. The Russian budget for 1881 exhibits revenues of 118.75 millions of rubles from the land and poll 'tax, and 19.26 millions of rubles from the taxes on businessrand these are the only ' direct taxes. The indirect taxes in Russia yielded 376.59 millions of rubles. It is to be noticed further that of the 118.75 millions from the land and poll taxes, about one- half was the revenue of the poll tax the mostiniquitous form of direct taxation. 10 PROBLEMS Of TO-DAY. INDIRECT TAXATION AND PAUPERISM. There is a connection between indirect taxation and pau- perism which is worthy of notice. All direct taxation places a limit below which it will not go. This is too low in Mary- land, at any rate lower than elsewhere, but even with us a man must have at least a hundred dollars before he can be taxed. Indirect taxation does not discriminate between the last dollar of the poor widow and the dollar which is only one in an income of a million. It raises prices, re- duces the jvralue of income, and forces some who are already near the awful line of pauperism to cross it, and thus puts to death higher aspirations in a class of citizens and lowers the level of civilization. But the absurdity of the thing is seen in this, that when the tax has destroyed the value of a man as an industrial factor in the community, what has been taken away is given back in alms ! INDIRECT TAXES OBSTRUCT TRADE AND FOSTER MONOPOLY. The cost of collection of indirect taxes is high, and ne- cessitates an army of spies and informers. They thus inter- fere with liberty of movement and obstruct trade in a thou- sand ways. Thus, again, indirect taxes take out and keep out of the pockets of the people more than they yield to the treasury of the state. 1 Indirect taxes foster monopoly and discourage thesmall producers. On account of indi- rect taxes a larger amount of capital is required to enable one to begin business than would otherwise be necessary, while in the administration of indirect taxes there is almost 1 Statistics representing the cost _of collecting direct and indirect taxes may be found in my work, " Taxation in American States and Cities." DIRECT AND INDIRECT TAXATION. lj always something which favors the man producing on a vast scale. The federal government requires bonds from producers of taxed commodities, and a poor man is not always able to secure bondsmen. Federal taxes are paid in stamps and discounts are given to those who purchase large quantities at a time. Indirect federal taxation has concen- trated or monopolized the production of the chief domestic articles which it has touched : namely, matches, tobacco, and intoxicating liquors. The monopolistic feature of in- direct taxation variesjvery greatly in different times and dif- ferent places, but in some form or another it almost in- variably exists. INDIRECT TAXES CONGENIAL TO DESPOTISM AND ARISTOCRACY. Indirect taxes are imposed on people without creating so much discontent as direct taxes and without causing so close a scrutiny of the method in which the proceeds of taxation are expended, because the mass of men do not realize that they pay taxes every time they purchase dry goods or groceries. They are an underhanded kind of taxation. It is not, then, surprising that they are in the minds of many identified with despotism and aristocracy, while there is a growing opposition to them on the part of enlightened de- mocracy an opposition which undoubtedly goes too far at times. In the United States it should be remembered that while national revenues flow from indirect^ taxes, state and local governments are supported chiefly by direct taxation. National revenues are about as large as the revenues of all the states and all the local political units put together, so that we pay less than one-half of our total expenses of government by the proceeds of direct taxes, and over one- half by the proceeds of indirect taxes. There would be 12 PROBLEMS OF TO-DAY. great opposition to an extensive system of direct federal taxes, because the face of the federal tax-gatherer in our states is not a welcome sight. Of course he is now every- where, but he keeps out of sight of most of us, and so we do not realize it. A good deal of this feeling against direct taxes has been properly called "puerile," and among a people sufficiently moral, patriotic, and enlightened, indirect taxation might perhaps be abolished. We must, however, take people as we find them, and at present its total aboli- tion is out of the question. Of course it is an undoubted advantage to be able to pay one's taxes in small amounts from time to time, when one buys a few pounds of sugar, a little tobacco, or an article of clothing. Our indirect fed- eral taxes are of two kinds, tariff duties and internal revenue taxes ; the former laid on commodities imported into the country, the latter on commodities produced within the country. Now there is a peculiarity about the revenues which flow from taxes on imported commodities, and that is, that those taxes are in the United States not laid for the sake of revenue, but for quite another purpose. The aim of the tariff taxes is to render it more difficult to bring com- modities into the United States, and thus either to remove competition from those Americans engaged in the produc- tion of commodities which some of us want to import, or at any rate to serve as a breakwater, and to modify the power of competition. The revenue which these taxes af- ford is merely an incidental matter. The purpose of the next chapter will be to consider certain peculiar features in our financial situation caused by the fact that taxes are laid on commodities for other than revenue purposes. The following table, taken from Paul Leroy-Beaulieu's " Traite" de la Science des Finances," shows the amount of indirect taxes raised in nine of the chief countries of Europe in 1876 : DIRECT AND INDIRECT TAXATION. 13 Countries. Population. Internal Revenue TaxeTon Commodities in Thousands of Francs. Customs Thousands of Francs. Total Product of Indirect Taxation. Per Capita Contribu- tion in Francs. Germany . . Austria- ) Hungary [ Belgium . . Denmark . . France . . . 42,727,360 36,882,466 5,403,000 1,903,000 36,643^000 3,865,456 2,759,854 33.093-439 27,500,000 264,375 352,840 51,269 5,251 9.S4.Q.S9 77,986 979 671,000 368,146 151,351 49,000 22,139 28,254 264,35! 415,726 401,840 73,408 33,505 I,2l8, 4 II 90,173 I3,35 6 1 , 1 76,000 469,104 9.72 10.89 13-53 17.60 33-25 4.83 35-50 - 17.06 Netherlands . Switzerland . England . . Italy .... 12,186 12,376 505,000 100,958 CHAPTER III. REMARKS ON THE PRINCIPLES OF A SOUND SYSTEM OF FEDERAL FINANCIERING. THE principles which should control public expendi- tures differ in marked manner from those which should govern private expenditures, and the failure to rec- ognize this fact explains many mistakes which have been made in American financial history. It is not necessary in this place to elaborate ajl^ the differences between private financiering and public financiering, but in any discussion of current financial problems one should be clearly grasped. It is this : Private expenditures should be governed by reve- nues, while in the case of a public body it should first be determined what one wants to spend, and then receipts should be made to correspond to public needs. The pri- vate man brings his receipts up to the highest point : in ier words, he endeavors to obtain as large a profit from his business as possible, or to derive as large an income from his occupation as circumstances will permit. After he has found that his income is $500, $1,000 or $5,000, as the case may be, he then and, if a prudent man, not before decides what he can spend. Unlike a private party, the representatives of the people ought first to decide that it is necessary to spend certain sums of money for the public good, and then ask the people to provide the means, laying taxes to meet expenses ; or, if part of the expenses are de- frayed by profits on public works and revenues from other FEDERAL FINANCIERING. 15 sources, laying taxes to meet the deficiency in receipts. This is a well-tested principle of public financiering. Strict adherence to this principle brings order and harmony 'into public accounts, while its violation produces confusion and waste. It implies that taxes are wholly, or to some consider- able extent at least, laid for revenue purposes. 1 When we begin an examination of our federal finances, we are struck by the disproportion between the needs of govern- ment and the revenues for meeting these needs. Sometimes the revenues are too large and sometimes too small, and when it is noticed that they are apt to be plentiful when there is comparatively small call for expenditures, and dis- tressingly small when our needs are large and urgent, it is a not unnatural conclusion that there is a radical defect in our financial system. Such is the case, and the defect is the one mentioned, that taxes are not laid for revenue pur- poses. When taxes are imposed upon a people to defray the expenses of government, it will be ascertained what those expenses properly are, and the rate of taxation will be so adjusted as to raise enough money, neither more nor less. This is the plan pursued by the mayor and common coun- cil of Baltimore, and the tax rate is designed to vary, and to be $1.50, $1.60, or $1.70, according to our actual needs. It can readily be seen, however, that the moment one loses sight of the object of taxation, which is revenue, and lays taxes for other purposes, it would be surprising if revenue should correspond with the need for revenue. That there should be this correspondence implies not only that taxes should be laid with a view to the probable revenue from them, but that the system of taxation itself should be a 1 This does not imply that no other purpose than revenue should be associated with the financial system of a country. A part of the taxes at least ought to be purely for revenue. 16 PROBLEMS OF TO-DAY. ' iflexible one in at least some of its essential points, so that ft ^'revenue may readily be lowered or raised without an acute v/"^ disturbance of business relations. The English government finds flexibility in its income tax, which is raised or lowered from year to year, according to estimated revenues from other sources and estimated expenditures. If it is required to raise large sums for the prosecution of a war, the proper minister at once brings a bill into Parliament to raise the rate of the income tax. Gladstone originally intended to defray all the expenses of the Crimean War by taxation without loans, and Parliament, with that end in view, raised the income tax considerably. This tax involves no disturb- ,ce of business relations, for it is not a tax on business or property, and it requires much of those only who have much to give. Thus, entirely apart from the fact that this method makes the influential classes feel their responsibility for the course of government, this English income tax, so far as it goes, assures a condition of sound public financiering. It is meant in this place, and' at this time, to raise the question of the' desirability of an income tax. Even the friends of an income tax are very properly inclined to regard it as better adapted to state than federal purposes, but what is said illustrates my point, namely, that it is necessary to es- tablish a system of taxation which in some of its parts at least shall_ be flexible. Now, it is manifest that our federal government never has had a system of taxation which an- swered the requirements of national financiering. . Our chief source of revenue has been taxes on imported com- modities. When are these likely to yield large returns? Manifestly during time of peace and prosperity. When are they likely to yield little ? Manifestly during periods of for- eign complications and wars. But it is during periods of the first sort that we need little, and during periods of the FEDERAL FINANCIERING. 17 second sort that we need much. Two periods in our his- tory are specially instructive on this point, and these are the periods covered by the War of 1812 and the late Civil War. Mr. Gallatin was forced to rely upon loans during the first war, and these could be placed only under conditions disadvantageous to the public, because there was no ade- quate basis for them in public revenues, for these consisted of duties on imported commodities, and the war, which called for increased expenditures, diminished imports. Mr. Dallas, in 1814, said: "The plan of finance which was predicated upon the theory of defraying the extraordinary expenses of the war by successive loans, had already become inoperative," and he ascribed the collapse " to the inade- quacy of our system of taxation to form a foundation of public credit, and the absence from our system of the means which are the best adapted to anticipate, collect, and dis- tribute the public revenue." Mr^Dallas uses the following instructive words in his "Report on the Finances for 1815" : "It certainly furnishes a lesson of practical policy that there existed no system by which the internal resources of the country couldbe brought at once into action when the resources of its external commerce became incompetent to answer the exigencies of the time. The existence of such a system would probably have invigorated the early move- ments of the war, might have preserved the public credit unimpaired, and would have rendered the pecuniary contri- butions of the people more equal as well as more effective. But owing to the want of such a system, a sudden and almost exclusive resort to the public credit was necessarily adopted as the chief instrument of finance." V , .. . Cr-fv-uA It seems scarcely necessary to remind my readers of the v / ,_V results of the financial policy of the late war. Secretary Chase, in his first report, in 1861, estimated revenues from C. 18 PROBLEMS OF TO-DAY. customs duties at $57,000,000, and at the end of the firs 4 \ / quarter found it necessary to reduce the estimate to \j $32,000,000. There existed no system "by which the internal resources of the country could at once be brought into action," and before this machinery could be created ^afcd rendered effective, the war was nearly finished. The /" n)l/ ' * \}r result was a vast and demoralizing public debt, on part of which it was necessary to pay twelve per cent, for money received, and return $100 in gold for $50 lent to govern- ment ; further, the creation in time of haste, confusion, and dire need of a tax system, which may be called a mon- strosity. /j^dEL Our tax system now yields surplus revenue, and it is diffi- cult to reduce it because it is framed for the benefit of private ^v-^j^txjnterests, an d these resist its reduction. " The full realization J of self-government requires a delicate adjustment of budget- " ary machinery, but surplus revenue acts as a weight which throws that machinery out of balance." These words are from H. C. Adams's " Public Debts," as able a work on finance as has ever appeared from the pen of an American. Now it is not true that this surplus revenue could not be advantageously expended. There are many uses to which it could be put which would be highly beneficial. The con- struction of proper coast ilejences is one ; the construction of great artificial water-ways and the improvement of nat- ural water-ways and harbors of really national importance ls~ariether4_tJi purchase of the telegraph is a third. These are given simply by way of illustration. It is not pleasant to pay taxes, but it may be doubted if JAA the ordinary man invests any money which yields so large a l- a>tA ^*retum as that which he pays in taxes, provided always that it jLXA-4 is expended by honest and intelligent public officials. This o ' / is often not < appreciated because there is too general a fail- FEDERAL FINANCIERING. 19 ure to recognize what is due to good government. But the moment the machinery of government begins to move uns isfactorily or to exhibit signs of breaking down, even the most confirmed tax dodgers do not hesitate to utter cries of alarm and indignation. Perhaps the anarchistic agitation has done same good in calling attention to the importance of good government. Mayor Latrobe, it occurs to me in this connec- tion, made an excellenXj^int in his recent address before the West Baltimore Improvement Association. He admitted the burden of taxation, but put the question, "Does any one regret the issuing of a single loan made heretofore for public improvements, such as the Gunpowder Water- works, the new CitY Hall, Druid HilL. Patterson, and River- side Parks, the opening of Cathedral and German streets?" Certainly no one regrets these expenditures. It is doubt- less true that the needs of the United States government Q may in the future require enough more than now to c sume all our present annual surplus, for Secretary Fair- child's report shows that the ordinary federal expenditures increased over thirty millions from 1884 to 1887, yet it is also true that in a matter like this we ought not to proceed faster than is warranted by the enlightenment of public opin- ion. This should crystallize about a measure and demand it faj&z&i before revenues for carrying it into effect are provided. To provide revenues before it is decided for what we need them is putting the cart before the horse. The surplus revenue could be usefully expended, but there is every reason to fear that it will not be. Rather than inaugurate any public work designed to benefit the entire public, but which is not as yet demanded by the public, timid Congressmen are more likely to grant money to clamorous private interests, with the idea of winning their support. Moreover, such a public measure as the appropriation of public money for the removal of 20 PROBLEMS OF TO-DAY. illiteracy one of the dangers to the republic cannot be discussed on its merits so long as an enormous surplus exists. advocates are suspected of improper motives, very likely of trying to get rid of the public money to bolster up war taxation, and it fails to receive the fair, impartial discussion \ /i which it deserves. The so-called " Blair Bill," which aims toaistribute seventy or eighty millions, more or less, among the states for theprorhotion of education, and to base this distribution on relative illiteracy in the various states, may or may not be a proper bill. The character of this bill is not involved in the present discussion. The proposed measure simply illustrates the difficulties which ajttend even the dis- cussion of any popular measure so long as our present methods of financiering continue. Free traders are in too ~~r many cases becoming fajiatical in their opposition to any ~" government undertakings on account of their desire to prevent expenditure^'^ public money, and thus by means l' of an alarming surplus in the treasury to force tariff revision upon the country. Protectionists, on the other hand, are too to become demagogues and to favor extravagant and iniquitous expenditures, provided they are calculated to " catch votes." As it is seen that duties on imports are not satisfactory as i ' an exclusive source of federal revenues, and can only form part of a system of federal taxation, the question arises : What have those to offer as a substitute who wish to abolish our present internal revenue taxes ? Unless the revenue reformers keep these various points in mind they are likely to be out- witted. The ten per cent, tariff reduction of 1872 was repealed in 1875 on account of deficiency of revenues, and if internal revenue taxes are abolished, and there is nothing to take their place, every future fiscal emergency will serve as an effective plea for a higher tariff. If we desire FEDERAL FINANCIERING. 21 once for all to break with our high and complicated tariff system, to avoid financiering of such a nature as to produce violejit fluctuations in business affairs, and to bring business down to a natural basis, we must be prepared to maintain and establish a system of taxation capable^ of meeting the varying demands_on the public treasury. CHAPTER IV. THE NATURE AND PURPOSE OF COMMERCE, i LX^O/tA^" I ""HE design of our present tariff laws is to regulate com- A* _L merce, and they are based on a certain theory re- . specting the nature and purpose of commerce. This fact ^^ hould be fully 'grasped, for no one is qualified to speak on and free trade who has not clear ideas in regard to the part which commerce plays in modern industrial life. The free-irader finds favor with the mercantile community because he looks upon an extension of commercial relations with satisfaction, and thinks that restrictions and regulations of commerce do more harm than good/ When an ancient French monarch called an opulent merchant to him and de- sired his advice in regard to measures suitable for the exten- sion of commerce, the merchant simply replied, " Laissez faire," which, interpreted into plain English, means : " Let us, the merchants alone. We ask nothing more. We ask no assistance. We only desire that you should not interfere with us." It was then quite natural that an early American free-trader Condy Raguet who, in 1829, published the once well-known " Free-Trade Advocate and Journal of Political Economy," should take as the motto of his periodi- cal " Laissez nous faire." The protectionist on the other hand, looks with distrust upon foreign commerce, for he fancies that the interests of the home producer may thereby be endangered. He therefore advocates restrictions upon that he may diminish its magnitude. Occasion- NATURE AND PURPOSE OF COMMERCE. 23 ally one is found who even wishes that a wall of fire s rounded the United States, so that nothing might be im- ^ t ported. Coupled with the apprehensions concerning the i it home producer one frequently finds disparaging views con- . cerning the real utility of commerce. These are partly tra- ~ i^ ditional, and are found from the earliest times to the pres- ent. The ancient Persians held commerce to be a school oHies. Cicero_ and the Roman philosophers despised com- merce, Cicero going so far as to say a merchant could never make anything unless he lied in the most atrocious manner. St. Chrvsostom believed it scarcely possible that a man could be at the same time a Christian and a merchant. There can, I think, scarcely bea doubt that the influence of these old views lingers on after commerce has changed materially its nature. Commerce originated in robbery, and in early ages it supplied chiefly articles of luxury, The Phoenicians and Greeks were pirates before they were merchants, and piracy played an important role in the de- velopment of English commerce in the sixteenth century. Nomadic people first robbed caravans, and only at a later period became guides and protectors of them, and thus as- sistants in the creation of a legitimate commerce. Piracy and robbery are no longer aids, but only enemies to com- merce, which is as a rule now found on the side of law and. order. An error of a_ different sort is still unduly current. It is that commerce is not productive. Benjamin Franklin said * there are three ways for a nation to acquire wealth : " The first is by. war., . . . This is robbery. The second by com- merce.* which is, generally, cheating. The third is by agri' culture^ the only honest way." The late Horace Gr^eley JU used to lament in his Tribune the large number of mer- 24 PROBLEMS OF TO-DAY. chants, and to hope that the time would come when ninety- ^ninejiien out of a hundred would become real producers. \pr The truth is that the merchant is as truly a producer as \ ,\he farmer. The farmer creates no new matter. No one can do that. He simply changes the position of things ; puts things in fit places, and thus adds to their utility. He ^>^^~drcps the corn in the hill, changes its place, puts it in the right place. He changes the position of earth, putting jt over the corn. The corn is acted upon1>y^naj 1 ural forces. i elements in the earth, air, water change their posi- tions, and form new combinations." The corn grows, and what was useless becomes useful. The farmer has changed the position of things and created utility or a quantity of value. That is all. No more than the merchant can he acfccl one particle to the quantity of matter in the earth. ft f~S^ Jf^Now, under the direction of the merchant, the position of things is changed. Goods are brought from a place p fluity could be found within three hundred miles. It has been stated that commerce previously ministered . t/f* luxury. Only articles of high value in small bulk could, ^^ NATURE AND PURPOSE c>A COMMERCE. 25 in early days, become the object of commerce, for it cosi more to transport such commodities as the masses consumed than they were worth. Grain and bulkier articles were transported occasionally fi^ipJ, in considerable quantities between seaports only, but the /j^~ ' commerce in these articles must in all earlier ages. Have been comparatively small. ,/ Precious stones, amber, finely-woven fabrics^-sllks, spices, wine, oil these are the articles with whiphfearly commerce was chiefly concerned. Perhaps nothirig can better illustrate, the progress of commerce in^fr century than those pas- sages in Adam Smith' s^>^ealth of Nations," in which, in Ck^La^. 1776, he assures^ktT'English farmersthat they need never ^v<^x, fear the wfiportation of Irish cattle and Irish grain, because they were so bulky in proportion to values as to render so distant a transportation unprofitable. " Even the breeding (fairk countries of Great Britain are never likely to be much affected by the free importation of Irish cattle." And a little further on Smith adds : " Even the free importation of foreign corn could very little affect the interests of the farm- ers of Great Britain. Corn is a much more bulky com- modity than butcher's meat. . . . The small quantity of foreign corn imported even in times of the greatest scarcity may satisfy our farmers that they can have nothing to fear from the freest importation." As every one knows, a hun- CU/i*^ dred years later the importation of corn and beef from (EL^-^ America, three thousand miles away, has been a cause of alarm to the British farmer. Two conclusions follow naturally from this : one is that Qn*- distance is jipt in itself the barrier against competition ^L^en. which it once was, consequently docs not afford the same ,; degree of protection to a given locality; the other is that restrictions upon commerce now are a matter of concern 26 PROBLEMS OF TO-DAY. not merely or chiefly to the wealthy, as once was the case, juz^\ but may be felt disastrously by the poorest, in raising the x-v_ prices of articles of daily consumption for the masses. The question of free trade and protection thus assumes a magni- tude heretofore unknown. The total foreign commerce of England was estimated in 1355 at 2s. ioiL per capita; in vl^ 1614, at i6s. 6dj, per capita ; in 1801, at ^4 6s. 6d. per cap- ita; buTirr-^SSo, at 16 6s. per capita. J*~ The per capita value of the exports of the United States creased from $6.03 in 1801 to $14.93 i n 1881. The for- eign commerce of Germany more than doubled from 1860 to ,1880. , ^""Commerce has- gone hand in hand with the increasing )(f national and international division of labor which has made modern wealth and the wid(T diffusion of comfort possible. In early^ stages of industrial development, each family was sufficient _ unto itself and enjoyed a rude kind of indepen- dence, but existence was precarious. Dearth followed plenty quickly, and there coukTbe no adequate provision for future contingencies. But as civilization began to advance the divisjon of labor was carried further and further, until at present time each one has some one occupation, perhaps manufacturing the sixtieth part of a shoe. Thousands min- ister unto his wants, and he Irf turn ministers unto thousands. To use a scientific expression : Differentiation accompanies social development. But the point of importance for us now is this : This diversity of pursuits, upon which our industrial civilization rests, implies and requires the exist- ence of active commerce. The principle is for each jndi- vidual to do what he can do best/ and for the peop_le__oj each region to utilize their own relatively greatest advan- tages. If Minnesota can best grow wheat, and South Caro- cotton, and Virginia corn, it is manifest that the total ~ NATURE AND PURPOSE OF COMMERCE. 27 wealth of society, the products for our consumption, will be more abundant if each locality is devoted to that pursuit for which it is specially adapted. Precisely the same principle holds with regard to inter- national commerce. If England is specially adapteofor V^f certain pursuits and we for others, it must be clear that our ' V mutual prosperity will be promoted by a diversity of pur- Qv^ suits and an exchange of products. Or are there special ^ conditions applicable to a division of labor between nations which are not applicable as between the various parts of the same country ? Some will say : If England sends us com- , modities, our labor and capital will be deprived of oppor- ! tunities for employment. But how so? If_England sends us commodities, must we not send rnmrnoHitips. abroad in payment ? And will not our labor and capital have more abundant employment in the production of commodities for which they are specially adapted than in those for which they are not specially adapted ? (ReJif^f- There are those, however, who think that it is a good r thing for a nation to send abroad more than it imports, *""*** so that it may have a favorable balance of trade. It is imagined that a nation grows wealthy by this means. It is, therefore, necessary to examine the balance of trade theory. Jr^ X CHAPTER V. THE BALANCE OF TRADE THEORY. T T E who attempts to draw any conclusion whatever as L ji to a nation's wealth or poverty from the mere fact of a favorable or unfavorable balance of trade, has not grasped the first fundamental principle of political econ- omy." When I heard these words uttered with emphasis by one of the most careful living statisticians, some years ago, I must confess that I was a little startled, accustomed as I had been to laudations of favorable balances of trade as indications of increasing wealth. Yet I suppose nothing in the entire range of economic science is more beyond ^con- troversy. Everybody knows what is meant by a favorable balance of trade. A trade between two countries is considered favor- able for that one which exports a larger quantity of goods than it imports, and unfavorable for the one which imports more than it exports. Similarly the entire foreign trade of a country is regarded as^favorable if all exports exceed in value all imports. The idea is that there is in such cases a balance which must be paid in money, and that a nation, like an individual, grows opulent by the accumulation of money. Let us examine these various ideas with some care. If our exports exceed in- value our imports, what does it mean ? It may signify that a number of Europeans own THE BALANCE OF TRADE THEORY. 29 property in the United States, and that this surplus pays . their interest, dividends, and profits. We know, as a matter /Q of fact, that many Europeans do own much property in the United States. Englishmen own vast tracts of land in our country, many millions of acres, particularly in our West. and the absejitej^English landlord has become a prominent *3 (/ by the acquisition _pf property abroad by Americans. I dom^^_. ?0 PROBLEMS OF TO-DAY. not say that such is a fact. I simply say it is a possible explanation. If Americans are acquiring property abroad, it is manifestly necessary not only to send out of tlie country goods in sufficient quantity to pay for goods we import, but a surplus to pay for investments which, on this hypothesis, are being made in foreign countries. If the balance of trade is favorable, the difference, or a part of it, is sometimes imported in bullion or money. A favorable balance of trade may, then, denote increasing W ealth, or it may denote poverty and economic dependence nations. It may denote neither the one nor the other, but simply signify that a nation is holding its own in international relations. The mere fact of a favorable balance f * //o^f trade in itself tells you absolutely nothing about a country. t It is, however, true^ that a majority of the wealthier nations Ls lA '~ / of the earth have what we call an unfavorable balance of trade,. T~ ** Let us compare the value of imports with that of exports in a few countries, selecting recent years almost at hap- hazard, and not taking certain years with a design of proving something. The value of German imports for 1876^ was 3914.8 millions of marks, 1 that of exports, 255 i.2_millions of marks ; for 1887 the figures are: imports, 3887 millions; exports, 2775.3 millions. Precious metals are included, but if__they__were excluded the proportions between exports and imports would notbe_radically_changed thereby. The imports into France in 1873 were valued at 45 76.4 millions of francs, 2 the exports at 4822.3 millions of francs. 1 A mark is $0.238; for purposes of rough calculation, four marks may be regarded as equal in value to one dollar. 2 A franc is a little more than $0.18; for rough computations, five francs may be regarded as equal to one dollar. THE BALANCE OF l^KADE THEORY. 3J The figures for 1874 are: imports^^^^^^ millions; ex- ports 4702.1 million^j^-foTT^75: imports, 446 1 .8 millions ; exports, 4J37_millions ; for 1876 : imports, 4908.8 millions ; exports, 4547.5. Precious metals are included in exports and imports^ but as in the case of Germany, they are re tively_so small, and are in this case so nearly equal, that the proportions between exports and imports are not materially changed thereby. The exports from France exceed in value the imports from 1873 to 1875, inclusive, but in 1876 the imports exceed in value exports. A possibje explanation would be that France " was sending commodities out of the country from 1873 to 1875 to pay for the expenses of the war with Germany, but that in 1876 trade had regained its normal condition. Hume tells us that over a hundred vears ago the English M^HMM^. ^"^^ ^-^.^ fc^ -^' J nation was struck " with universal panicj' because some one demonstrated that the balance of trade was so unfavorable as to leave them that is, the English people without a shil- ling in money in five or six years. That demonstration was madejwenty years before Hume wrote his essay on "The Bal- ance of Trade," but he records the fact that money was then ' more plentifuHn England than ever before. The unfavora- ble balance of trade still continues in England, and is some- thing enormous the best proof of England's immense wealth, for this unfavorable balance represents the tribute other people pay to Englishmen. The imports into England Cc/^a * < in 1874 to take the statistics in one year only, which /^y answers our purposes as well as a dozen were valued at fl / ' ^331^^43,000, exclusive of precious metals ; the exports, 1^ ' also exclusive of precious metals, at ^"278,053,000. Rich little Belgium also has a large unTavorable balance of trade. The imports into Belgium, exclusive of precious metals, were valued at 1448.5 millions of francs ; the ex- 32 PROBLEMS O.J- TO-DAY. ports from the country, also exclusive of precious metals, at 1063.8 millions. These are wealthy countries, but the United States with its favorable balance of trade is also prosperous. In the fiscal year 1877-8. our imports were valued at $466,873,000, and our exports at $722,812,000. But Egypt poor, impov- erished Egypt has the most magnificent so-called favorable balance of trade to be found in the world ! I mean, of course, in proportion to its entire commerce. In 1874 the imports were valued at 507,064,155 piasters, the exports at 1,342,347,266 piasters; the estimate for 1876 was : imports, 561,946,693 piasters; exports, i,333>33348 piasters. These illustrations, which might be multiplied indefinitely, show how much significance is to be attached to a favorable of trade in itself. However, it is only a wealthy nation which can have a large unfavorable balance of trade a permanent thing. What does this mean? It means at such a nation possesses stocks, bonds, and various kinds f property in other countries, and that the people of those countries are working for it. It is similar to the case of a man who is able to consume more than he himself produces, is a sign that others are wbrking for him. To value a commerce in proportion to exports is to misconceive the advantages of commerce. Commerce is valuable for what it brings us, not for what it takes frorujus. ^u) It will readily be understood, then, that I am not able 1 without reservation to join in the self-gratulations of those who delight in our large favorable balance of trade, and that I scarcely think this a strong tariff argument. Our favorable balance of trade places us in the same category as_ Ireland. India, and Egypt. * f / J ^ '{ V ' -vi,- fl^fcub CHAPTER VI. FURTHER CONSIDERATION OF THE BALANCE OF TRADE THEORY. THERE are several points connected with the balance of trade theory, as usually stated, about which it is essential that we should have clear ideas. They therefore require further examination. First. It follows naturally, from what has been said in the previous chapter, that a favorable balance of trade does not signify that the precious metals are flowing into the coun- try. In itself it tells us nothing about the international movements of the precious metals. Gold and silver may be coming to the country while an unfavorable balance of trade exists, p*.,^-*-^**-^ yi*-*JU<*&4 ^ rtZea-t- *&a-&&<^ Thus, in 1882 the amount of gold and silver imported iuto England exceeded in value the precious metals ex- ported, although during that year the balance of trade was against England to an amount exceeding" in value one hun- dred and twenty millions of pounds sterling. 1 On the other hand, the precious metals may be leaving ji country while a favorable balance of trade continues. The commerce of the United States for 1884 serves as an exam- 1 " The amount of bullion and specie which has been imported into England during the ten years from 1867 to 1876 has exceeded by no less than ^53,800,000 the amount which has been exported; although during this period the aggregate value of her imports exceeded by no less than ^804,000,000 the value of her exports." Fawcett, in his "Free Trade and Protection," page 135. 34 PROBLEMS OF TO-DAY. pie. The balance of trade was in our favor, but the yalue_ of precious metals exported exceeded the value of precious jnetaljmported. -r Second. If a favorable balance of trade in the United States were always accompanied by an addition to our store of money, it would not necessarily be a cause for national self-gratulation. People fall into the most obvious errors On I i^ this matter because they do not stop to inquire into the differences between those things which make an individual ^Vr" VJ^ppsperous and those which make a nation prosperous. A jtt^ merchant says : " If I increase mystock of money I become -/4/I wealthier." This is true, but it does not follow necessarily ^- that we would all be more prosperous if the total amount of money in existence were doubled. It would, on the other hand, be a misfortune to some people, and to multiply the amount of money in existence twenty times would probably be a universal calamity, upsetting all industrial and commer- cial relations. This must be made clear. If the money in my pocket is increased twenty-fold it is a good thing for me, because my proportion of the money in the country is in- Ujt creased. I can buy more goods. But if the amount ot T^ ' money in every one's possession is multiplied by twenty, 4r . will there not be a corresponding rise in prices ? If so, will It/ 1 *" 7 ^ I be better off than I was before? In one case, I will, namely, if I owe something to some one ; if I am in debt and my debt is to be paid in money. If, on the other hand, sums of money are due me, this increase in the circulating medium impoverishes me. We may look at this matter and it is of vital importance in these discussions from an- other standpoint. Why do we wantjnoney^? Manifestly for things it will buy. But does the increase in the supply of money in itself increase the quantities of useful things which we wish to buy? THE BALANCE OF TRADE THEORY. 35 The Spaniards in the sixteenth and seventeenth centuries rflade the mistake of overestimating the importance of gold and silver to a country, and instead of building up com- merce and manufactures and improving their agriculture, Q. seemed to think of little else than the devices by which the largest possible amount of the precious metals could be brought into the country, especially from their American possessions, and once in the country could be kept there. They neglected the most important sources of wealth, and to this day they have not recovered from the disastrous consequences of their mistaken policy. _ I am far from saying that it makes no difference whether u.^^-^ we have much or little money. A large amount is required -j/u^ru^c* to conduct the business of the country and to obviate the inconveniences of barter. An increasing amount is required for our growing, expanding industrial life. A fall in prices,, owing to insufficient supply of the precious metals, in- creases the value of financial obligations incurred in the past and enriches bondholders and other creditors at the expense ( of the rest of the community. All this I recognize. I sim- ply maintain that no regulation of commerce by protective tariffs is required at the present time on account of our money supply. There are other ways and better ways of providing for a sufficient quantity of money. The inter- national movement of the precious metals is largely auto- 6-^f made. If the precious metals begin to leave a country which is not cursed with an irredeemable paper currency prices will fall, but the moment prices fall it becomes more profitable for foreigners to purchase their commodities, and there is thus a tendency to check the flow of money from the country. This by no means exhausts this large subject, but it is sufficient for present purposes. Third. I have to remark that as between countries com- 36 PROBLEMS OF TO-DAY. modities are exchanged for commodities, and that very money passes from one to the other. If England sends us commodities we do not, as a rule, send money abroad, but we pay for them in commodities. This is a matter so familiar to merchants who have dealings with for- eign countries that it may seem to them scarcely worth while to mention it. Yet a failure to comprehend this fact and its bearing is a chief_cause of confusion of thought in regard to international trade. This third point is closely connected with the second. When money does begin to leave a country it becomes more profitable to export commodities than formerly. Thus t through action on prices the natural relations between ex- \ ports and imports are maintaine/efT I send goods to Eng- land, and the Englishman to whom they are sent becomes /indebted to me. At the same time another Englishman sends goods of the same value to an American importer. e agree that this importer in America shall pay me, that the English exporter shall receive his pay from the Englishman who bought my goods. Thus no money leaves England and nonejeaves America. This all takes place through the medium of bills of exchange, drafts, occasion- ally postal money^rders, and the like, and the services of bankers and brokers are required, but the principle is the simple one just described. Illustrations will serve to render this still clearer. In the k^syear 1884 in England it required an importation and ex- )r portation of only a little over forty millions of pounds ster- ling to do a foreign business of over six hundred and twenty millions. It required in the same year in the United States an exportation and importation of less than ejghty-eight mil- lions of dollars to do a total foreign business in imports and exports valued at about fourteen hundred millions of dollars. If ^"^ L' A , 8f&wJL frtnr THE BALANCE OF TRADE THEORY. 37 balance of trade theory grew up at a time lf~ when it was imagined that there was a more serious diver- sity between the interests of one nation and those of an- other than actually exists. It used to be supposed that what one nation gained another lost, and our protective tariffs can be traced back to that Allusion. This must not be misunderstood. This illusion is -not a sufficient explanation of protectionism now. It is not in this connection even stated that something may not be said for protectionism. It is simply asserted as a historical fact that protective tariffs can be traced back to this illusion. Some optimists push the idea of harmony of international interests too far. Unfortunately, complete harmony does not exist unless, indeed, we view those interests from the highest Christian standpoint. But in the main, in matters of trade, international interests are harmonious, at least to this degree, that each ought to desire the prosperity of all the others. This is so simple that it seems absurd to state it as a scientific proposition ; yet the failure to act on C!AX-C. this principle has been a fruitful cause of enmity between Wrw- nations. Do we desire opulent or impoverished customers ? Which class does a merchant desire ? The case of a mer- chant's customers is similar to that of the purchasers of a country's products. Nevertheless some people talk as we had something to hope from the impoverishment ol Europe by means of war or othenvise. What we would thereby gain would be temporary and would -&OUL*^ be more than counterbalanced by loss in the future. All this ^&<^/t has been stated often enough, but one hundred years ago it was as something startling that Hume proclaimed his desire for ths prosperity of other nations as consistent with his loyalty to England. These were his words : " Were our narrow and malignant politics to meet with success, we 38 PROBLEMS OF TO-DAY. should reduce all our neighboring nations to the same state of sloth and ignorance that prevails in Morocco and the coast of Barbary. But what would be the consequence? . , They could send us no commodities ; they could take none -^"*Y, "LA^""^,*"" , ]& from us ; our domestic commerce itself would languish for want of emulation, example, and instruction, and we our- should soon fall into the same abject condition to we had reduced them. I shall therefore venture to acknowledge that not only as a man, but as a British sub- ject, I pray for the flourishing commerce of Germany, Spain, and even France itself. I am at least certain that Great Britain and all those nations would flourish more did their sovereigns and ministers adopt such enlarged and be- nevolent sentiments toward each other." The balance of trade theory, then, as ordinarily presented miigt he rejected. It represents it as the purpose of each nation to export more than it imports in values, manifestly impossible as a universal policy, to say nothing of the fact that it misrepresents the true end of commerce, which is imports, not experts. The hypothesis upon which it is based is false, and the conclusions drawn from it are mis- leading. CHAPTER VII. THE EARLIEST TARIFF LEGISLATION IN THE UNITED STATES. I INFER from occasional remarks that some people who have been good enough to read my papers, imagine that I take a far more radical position on the subject of free trade than I should like to assume. ^ have no desire to attack American manufacturers, and I certainly am not pre- pared at present to advocate the withdrawal of all protective GLUy < duties at once. On the contrary, I hold that this would be^f- i ." , . . XA^C^n a grievous blunder and a positive wrong. I am not even , willing to call myself a free-trader. I am neither a free- ' trader nor protectionist in the sense in which these words are often used. I am unable to ^believe that any one policy respecting international commercial relations is an absolutely ** *\ correct policy for all times and all^places. Nor_have I any /? , sympathy with those who attack all protective tariffs on ab- stract moral grounds. If a protective tariff is a good thing, let us by all means have a protective tariff. But when I say a good thing I mean a good thing for the people as a whole, and not for any one class of the people. At the same time, I am 'not prepared to denounce protectionism as in itself legislation. It is quite conceivable that protective 'may be laid on imported commodities in the interest of the country as a whole, and of course that is always the design of pure-minded legislators. On the other hand, n 6 tariff legislation may become virtually class legislation, and I 40 PROBLEMS OF TO-DAY. believe one of the most serious weaknesses of the policy of protection 'as viewed in the light of history is its universal tendency to become this kind of legislation. Special inter- ests are apt to lay their hands on even the be"st kind of a protective tariff at a very early date in its history and to shape it to their erids in disregard of the general welfare. o explain my position still further, it may be^entostate at once that I shall urge no constitutional objections to a tariff. Always provid ecuomstn promotes the general welfare, I do not believe that such exist; and it is very certain that nothing is to be gained at the present time by pounding away at this well-threshed straw. The subject of tarifflegislation must be viewed histori- *^ "* in order to understand the merits of the present con- ^^troversy between free-traders and protectionists in the l/t*^" United States. The men are few, indeed, who would claim that it is rational to legislate on the tariff as if we -.were go- ing to start from the beginning and frame a new policy for ' a new land. Our present policy is an historical growth, and ij^'as such must be treated. When one sees the jobbery and t^\ corruption connected with tariff legislation, the hypocrisy it ^ I \L fosters, and perceives how certain monopolies hide them- r' x/ V| selves behind it as a safe bulwark, one feels at times moved by righteous indignation to wish the whole thing swept from the face of the earth. But more mature refiWtjnp \er\d^ to calm one, and to show_the impracticability jjf any siich_radi- cal measure. It is impossible to present a history of the tariff legislation of the United States in these articles, for if it were attempted ^l"(.' to do that, and to do it thoroughly, new issues mignc arise in the country, and, indeed, in turn become matters of the past before this series of papers could be brought to a close. EARLY TARIFF LEGISLATION. 41 A few main facts should, however, be_brought to mind, and a firm grasp kept on them in discussions on the tariff. Protectionism, whatever proportions it may have since as- sumed or whatever appearance it may now present, entered our country with the meekness of a lamb. Everybody knows how it happened. It becameneggggajy in 1789 to provide the young republic with revenues. Direct j^n tion seems to have been rejected without seriousjsonsideration as not adapted to our federal governmenlX'There was the usual prejudice against direct taxation, coupled with a jeal- ousy of trie states against what they would have deemed in- terference in the affairs of their citizens. Now, as indirect taxes were the only alternative, it remained to chooseTe- -VUUU* / ' A^| tween taxes on commodities produced at home, internal revenue taxes, and taxes on imported^ articles, customs duties. X. The prejudice against internal taxes seems to have been nearly as strojdg as against direct taxes, and for somewhat the same reason. Taxation of commodities is in any shape a serious interference in the business affairs of producers, but when commodities are taxed on entering the country in a few great ports it is less obvioiisx^To-dav there are, doubt- less, persons who fail to see the fact, although it is beyond all controversy, that the taxation of three or four articles of do- mestic growth or manufacture is an almost incomparably smaller measure of interference in private affairs than the taxation of four ^thousand and more imported articles. On the other hand, the tax paid by producers at home is more readily visible ; the fact of the existence or' the tax is palpa- ble. It was therefore decided to begin our revenue system with customs duties. The first tariff act was passed in 1789. It was mainly for revenue, while protection was only incidental. Anotnei nfjt- \2 PROBLEMS OF TO-DAY. motive whicn was prominent, if not predominant, is well de- scribed by Prof. Henry C. Adams in his monograph on "Taxation in the United States, 1789-1816." It was the spirit of nationality which was so pronounced in the early federalists. It was hoped by means of a tariff on imported commodi- ties and by the use of domestic products to weld together the different states into a strong union. It was this same animus which prompted public men to appear in homespun clothing. The difference between this plea for protection and the plea we hear now is brought out by Professor Adams, in these words : " The argument then regarded as convincing was, ' The sure way to establish nationality is to exclude _fpreign_ products.' Now, on tTie other hand, we hear, ' The sure way to become rich is to exclude foreign products.' " But what was the rate of taxation imposed by the act of 1789, and what was the character of this taxation? First its comparatively simple character must be noted. There a list of articles subject to specific duties, taxes on L^-crv^r quantities of commodities, and not on values the simplest kind of import duties. Then taxes were very moderate. Nails and spikes, for example, were taxed one cent per pound, molasses 2^- cents per gallon, boots 50 cents per pair, hemp 60 cents per 112 pounds, coal 2 cents per bushel. d \- n There were three or four classes of duties, based on values, or ad valorem duties. One class paid 10 per cent., another 7^- per cent., a small class 15 per cent., while all unspecified imported goods were taxed 5 per cent. There was a short free list, including important commodities, such as wool, cotton, dyeing woods and dyeing drugs, copper in plates, and all furs. The significance of these rates becomes mani- fest by comparison with the table of ad valorem rates on ~ x iut~ $-n EARLY TARIFF LEGISLATION. 43 dutiable merchandise entered during the fiscal year ending June 30, 1887. In this table we find that the rates vary from a little over 21 per cent, to 154 per cent. Revenue was insufficient and rates were raised about * 2^ per cent, in 1790. The purpose was revenue, and not protection. -The truth is, there were scarcely any manufactures to protect at that time except shipbuilding. Agriculture and commerce were the chief pursuits. Reve- nue was still insufficient, and the tariff law of 1792 was passed, and this was supposed to carry out the intention of Alexander Hamilton as expressed in his celebrated report of the_previous year on manufactures. The average rate of duties then became 13^- per cent. Internal revenue taxation was introduced in 1791, and distilled spirits were taxed, producing the "Whiskey Insur- rection" in Western Pennsylvania. Opposition to this tax was manifested in several states, and the""~gT6unds of oppo- sition were largely those which make against indirect taxation in general. In 1794 internal taxation was ejctended, and thus three new sources of revenue were included. The sale of liquors, the manufacture of snuff, and auctions were taxed. Carriages were also taxed about this time, and at rates varying from $2 each per year to $15 each per year. Stamp duties on certain legal papers were added in 1797. /I )irect taxes on lands and houses were added to the sources of revenue towards the close of the century. Then direct and internal taxes aroused opposition and were one cause of 'A A/T the fall of the federalists. They were all abolished after Jefferson' became president. Before that tKeynaci not been satisfactorily administered and had not^frecome very pro- ductive to do which requires severar'y ears for a new sys- tem of taxation. What was the consequence of this state of things ? Pre- 44 PROBLEMS OF TO-DAY. cisely what might have been expected. Import duties were raised in 1792, 1794, and 1797 because new demands were made on the public treasury and revenues were insufficient. After internal taxation had been swept away the movement became more rapid. Taxes on imports were raisediniSoA, and although this, like previous acts, was regarded as merely temporary, it is significant " that no important-duty once imposed, except that upon salt, was ever relinquished." Well, duties on imports were raised continually until dis- turbances with England called for such large expenditures ,~^ that they were doubled in 1812, which, instead of produc- ing more revenue, lessened existing revenue ; for, " in the arithmetic of taxation, two and two, instead of making four, often make only one." After all, it was necessary for the \)same party, which, in response to popular clamor, had abol- hy\A^ished internal revenue taxation, to reintroduce it, again go- i/ring to the expense of building up a suitable machinery for " ' , administering the system and waiting for it to begin to pro- x LJl>^\duce large returns. The worst aspect of such shifting policy * ojfis the disturbance of business, under which the weaker ele- ents, "the small men," go to the wall, thus producing a ndency to monopoly and concentration of wealth. The lesson to be drawn from this is obvious, and corroborates what has already been said. It is essential to public wel- fare that a system of taxation adequate to meet fluctuating, and on the whole increasing, demands on the public treasury should be maintained. It is not stated at present what this should be. Our internal revenue taxes may be retained or something put in the place of them, but in either case the main fact remains. Our duties on imports will always be fluctuating, will always tend to increase, and will always give opportunity for jobbery and corruption, unless they are based on true, rational principles, and to base them on EARLY TARIFF LEGISLATION. 45 rational principles is impossible unless other fruitful, easily managed sources of revenue exist. The duties up to 1816 were for revenue with incidental protection, but in that year Clay spoke in favor of " a thorough and decided protection to home manufactures by ample duties," and his ally, Mr. Ingham, declared thereve- nueto be only an " incidental co/isideration." How did it happen that the old standpoint was completely reversed so that the principle of " protection, with incidental revenue," took the place of the principle " revenue, with incidental, protection " ? The event which led to this change in policy must be described in the following chapter. CHAPTER VIII. THE GROWTH OF PROTECTIONISM. WE have already examined the first_cause which led to the establishment of protectionism as " the Amer- system." This cause was a faulty federal revenue sys- tem, lacking the first principle of scientific finance, which is flexibility and elasticity. We have seen further that this weakness inheres of necessity in any system of national reve- nues based almost exclusively on duties levied on imported commodities, because these yield least in every critical junc- ture. A deficit and debt result therefrom. The question tEen arises, How shall we increase revenues? But having provided only one source of revenue, we \most naturally have recourse to that. But this is not all. Taxation moves along the line of least resistance. Adam Smith tells us that in the days of feudalism, government was so weak that only those were taxed who were powerless to resist taxation : namely, the common people. The clergy and nobility were exempted, and privileged classes arose, as always happens under weak governments. But in the case of taxes on imported commodities there is a line along which they can move without encountering any^Opposition whoever. Let us express ourselves more accurately. There may be some opposition, but this is opposition on the part of the un- organized masses, "the forgotten millions," while there is an organized body of special interests urging an increase of taxation along this line. Government is entreated to tax those things which home producers desire to sell, in order GROWTH OF PROTECTIONISM. 47. to limit competition. In whichever other way the legisla- tive authority turns for revenue, powerful opposition is en- countered, while there is no outside pressure brought to bear to urge it to levy taxes of such a nature as to interfere as little as possible with the pursuits of the people, and to place as small a burden as possible on the ordinary man. , The forgotten millions are beginning to organize, and this is the chief significance of bodies like the ICnights of Labor. By their very nature they are impelled to watcn public measures from the standpoint of the people at large, and not from the standpoint of special private interests. This must not be taken as an indorsement of all the views of any labor organization. It is very natural that popular organizations should hold many mistaken views in regard to the general welfare. But it is believed that the drift of such organization will on the whole and in the long run be in the right direction. The permanent success of such an organization depends on the strength with which it pushes forward to the attainment of purposes calculated to benefit the masses. However, the line of least jre sis tance for the movement of taxation is manifest^ in a country which relies for revenue mainly, if not exclusively, upon customs duties. Prptec- tionism was the most natural outgrowth possible of our sys- tem of taxation, and I dwell upon this because precisely at this time it is essential that we should understand those principles which underlie our financial development and make it what it is. Otherwise a repetition of past errors is something inevitable. A second cause, however, was powerful in the establish- ment of protectionism in the United States, and it was this second cause which led in the first instance to the substitu- : tion of the principle of "protection with incidental revenue," 48 PROBLEMS OF TO-DAY. for the older principle, " revenue with incidental protection/ and an examination of this cause is of prime importance in a study of our tariff history. I refer to the hostilities between the United _ States and England and, to a less extent, 'ranee which finally culminated in "the War of 1812." Before these hostilities our chief pursuits were commerce and agriculture, whilejnanufactures were insignificant. There V*-' was more or less manufacturing industry, but it was pursued in small shops where the proprietor worked with his own hands, assisted by two_OT_three_journeymen and one or two apprentices. There was, for example, always the village carpenter and shoemaker, and the blacksmith at the country cross-roads. But manufacturing on a large scale could scarcely be said to exist, and it was even in Europe only in the early stages of its development, for the " industrial revo- lution " had but recently begun. Now, during the Euro- pean wars, which centred first about revolutionary France and later about the person of the first Napoleon, our com- merce developed with a rapidity which is said to be without parallel in the world's history. It was unsafe to send goods in European vessels, as all European powers had their ene- mies, and the goods were consequently liable to capture. America was the great neutral power, and our commerce was for some time tolerated under more or less vexatious restrictions. While commerce was in this troubled period of the world's history pursued with difficulty, the relative disadvantage of our commerce was least. It was estimated that our advantage, as compared with the commerce of other countries, could be placed at twenty or thirty per - cent. While this condition of things continued, we naturally absorbed an ever-increasing share of international trade. It was equally natural that our capital and labor should be (attracted by the rewards of expanding commerce. The fol- GROWTH OF PROTECTIONISM. 49 towing table will place vividly before the reader the result of the events described from 1 789 to 1 796. YEAR. AMERICAN TONNAGE EMPLOYED IN FOREIGN TRADE. BRITISH TONNAGE EMPLOYED IN AMERICAN TRADE. I78Q . 127,^20 Q4,I IO 4I4.67Q 206,065 i; 21; ,640 ?7,o<;8 675,046 10,660 ' / I The American tonnage engaged in foreign trade increased up to the year 1807, when it amounted to 848,306. A change was then forced upon American industry. The struggle between France and England waxed fiercer, and mutual hatred became more intense. Both determined that V there should be no neutrals, and endeavored to force the United States to take sides with one or the other. A series of measures were inaugurated with this end in view. Thus Great Britain in 1806 declared a blockade of all those ports in Europe which belonged to powers allied to France, and Nap_oleon followed this action by his "' Berlin decree," which forbade all vessels from entering any British harbor. Eng- land retaliated in 1807 with the "orders in council," aimed directly at American vessels, and forbidding them to enter any European harbor outside of Great Britain and Jsweden. Napoleon replied with his " Milan decree," which ordered the capture and sale of all American vessels entering British harbors. What was America to do? There were various things which might have been done, but as to what actually was done, I doubt if any American feels proud of this chapter in his' country's history. Low taxes seemed to be 50 PROBLEMS OF TO-DAY. valued above everything else, and no provision was made by Congress for maintaining our dignity and our rights as a nation. The penny wise and pound foolish policy was pur- sued with results even more than usually disastrous. Our Congress decided to withdraw the assistance which our com- merce offered to the nations of Europe, hoping thus to bring them to terms. It was a kind of governmental " boycott," which, boomerang-like, reacted most severely on ourselves. The Embargo Act of 1807 forbade the departure of any American vessel for a foreign port, and this was followed by , j^y the Non-Intercourse Act of 1809, which prohibited commerce with France and England, but not with other powers. This act expired in 1810, but was revived against Great Britain, which continued its hostile actions until the outbreak of the War of 1812. This war was the most complete kind of pro- tection, for commerce with England was by us declared un- lawful, and our ports were blockaded by England. Our commerce was crippled, and as early as 1808 a marked change in the character of our industrial life was visible. The capital and labor which formerly had obtained empjoyment in international trade was diverted to man- ufactures. " A commercial war," says Prof. Henry C. Adams, "is always propitious for the establishment_of new industries, and in the present case there was developed an intense desire to maintain by law, after the cessation of hostilities, those conditions which secured to industries con- trol over the home market. Then for the first time was it that protection as an independent industrial system forced its way into the history of the United States." The exports from the country during the years 1808 to 1814 declined from a little over one hundred and eight millions of dollars to less than seven millions, and revenues GROWTH OF PROTECTIONISM. 51 from customs and tonnage from a little over twenty-seven millions to less than five millions. " Establishments for the manufacture of cotton goods, woolen clothes, iron, glass, pottery, and other articles sprang up with a mushroom growth." These are words used by Professor^'raussig, from one of whose works on the tariff I take the following statistics showing the growth of the cotton industry during the war period. There were but four cotton factories in this country in 1803, when new machinery and new methods began to be introduced. It 1805 the number of spindles was 4500; in 1807, 8000; in 1809, 31,000; in 1810, 87,000, and in 1815, 130,000. When the war with England was brought to a close oui- commerce had been in considerable part destroyed. Capital and labor had been diverted to manufactures, but these had been established under abnormal conditions. They had now to face the competition of Europe, and in particular of England, whose stores of commodities, long pent up by war, began to flow over the world, and in quantities in excess of the power to purchase them on the part of consumers. The manufacturers cried out for protection to their " infant in- dustries " against the old-established industries of Europe, and their cry was heard. A possible alternative course of action must be discussed in the following chapter. CHAPTER IX. INFANT INDUSTRIES IN THE UNITED STATES IN 1816. industrial situation in the United States at the _L close of the War of 1812 was a trying one, presenting problems which required for their successful solution states- manship of a high order. Now, statesmanship of a high order does not mean merely the ability to lead men, but the ability to lead them in a direction which subsequent 1 events prove to be the right/direction. It is, however, pos- ; sible only for those to forecast with a reasonable degree of probability future events in the life of a nation who have a profound knowledge of the causes at work which are shap- ing national destiny and making it what it is. We are now speaking of industrial development ; and the science which treats of this is political economy, one of the most difficult sciences to master in its various ramifications. We see, then, how much is required in a man to give such character to his political activity that it shall wear permanently the mark of statesmanship. There must be leadership, with all the rare and admirable qualities which that implies ; and this must be accompanied by action based on a profound insight into the nature of social and economic forces at work both in the nation and in the world at large. Great as were the men of the first half of this century, in the light of present events it must be acknowledged that INFANT INDUSTRIES 53 anything which can fairly be called statesmanship was rare indeed among them. The year 1816 witnessed the firm establishment of the protectionist theory as " the Americar/system." Protection to manufacturing industries had not come oi . our deliberate and carefully-formed purpose. First, as we have seen, the thought of our leaders, with Hamilton at their head, was this : We must have revenue ; and if, in raising this revenue, we tax imported commodities of a kind produced at home, and make importers pay from five to fifteen per cent, on the bulk of imports, our home industries will receive, merely as an incidental matter, a slight protec- tion ; and it is well that they should be thus favored. This was a mistake ; for, granting the principle, a way was opened for its subsequent growth. The principles which distinguish between a tariff for revenue only and a tariff for protection are radical, and it is not easy to combine the two, Perhaps it is not too much to say that any attempt to do so ./> amounts to a victory of the principle of protection. When the first tariff bill was under discussion in Congress, Mr. Clymer, of Pennsylvania, appears to have been gifted with an insight comparatively rare, for he wished the bill separated into two parts. The one part was to be a revenue bill, and was to be shaped with reference to revenue princi- ples solely. Other matters, such as protection to infant yf industries, were to be considered by themselves, and on their own merits. This was entirely rational ; and if pro- (0~r~ ' tectionism is desirable, this is the proper scientific method for affording it. The question now involved is not protec- tionism or free trade ; but if protectionism is desirable, how shall we establish it ? /> ' . The disadvantages of taxes on imported commodities are many. One of the chief of them is that it compels us to - ^xiA 54 PROBLEMS OF TO-DAY. move about blindly in the dark, without power to estimate fully the consequences of our own acts. We pay taxes to encourage manufactures ; but the extent of the burden we carry no man knows, because we are operating in viola- tion oFtKS"^^on"oftaxatipn which prescribes . that taxes should take out and keep out of the pockets of the people as little as possible over and above what flows into the pub- lic treasury. We pay a tax which goes to the government and is returned to us in the inestimable benefits which good government confers ; but we pay another tax in increased prices of commodities, and we cannot ascertain the precise amount of this burden. It contains some of the worst evils of indirect taxation which have been already described. It is covert ; it takes from us in sly, pick-pocket fashion, and we never know the cause of our diminished fortunes. The ordinary man simply feels that something is wrong ; but he cannot tell what it is. The Sun, in a recent article on " The Cost of It," gave an estimate to the effect that we pay to government only one-fourth of the total burden. In other words, if this estimate is accurate, for every dollar we pay into the federal treasury we pay three more to home pro- ducers, in higher prices than would otherwise be necessary, and instead of an apparent burden of $217,286,893, we are bearing an actual burden of $880,000,000. The second false step was made in the establishment of an 1 inadequate system of federal finance already sufficiently elaborated in these articles. It is only necessary to remind (readers of the fact that its nature was such as to compel a recourse to customs duties^ for the increasing demands of government. The manufacturers of 1816 wanted protection, and pleaded for their infant industries, and this argument told, for the protection afforded them was originally limited to a short \t INFANT INDUSTRIES. 55 c \V' <*? \^ period. The duty on cotton and woollen goods was, for example, raised to twenty^five per cent., but this was to hold only until 1819, when/it was to be reduced to twenty per cent., which was about the average rate under the act of 1816. Calhoun/defended this protective measure -on the ground that infant industries required the fostering care of government. Tt is contended, however, by free-traders that real infant industries never fiet any protection ; but in the tumultuous clamor of special private interests, only the powerful can hope to receive government aid. There is much in our history which, so far as it goes, tends to sub- stantiate this view. Every one knows that instead of gradu- ally lowering the duties levied for the sake of infant indus- tries as they progressed toward adolescence and maturity, the protective duties were raised. The more they got, the more they wanted ; and the twenty per cent, duty of 1816 would be scorned in 1888. Yet we must not lose sight of the facts of the case. What was to be done ? Two false steps taken by Congress have been mentioned; but more powerful was the War of 1812, with the preceding events which led to it. This war period was in itself the strongest kind of protection ; and manu- facturers grew up under this protection, which came not by our action, but in spite of ourselves. Should these manu- facturers be allowed to perish, their capital to be destroyed, in part, at least, and should the labor which they affordecj employment be cast adrift? Congress replied, " No " ! Pro- tectionists say, " Yes ; your free-trade theory will be all right when you have established perpetual peace between nations, but that Utopia has not yet been attained ; and (p until human institutions are radically changed, war will from time to time interfere with the plans of you free-traders and disturb that international division of labor upon which you li 56 PROBLEMS OF TO-DAY. predicate their beneficence. Yes. When you can guaran- tee perpetual peace we will become free-traders ; in the meantime we will adhere to protection. Free trade is cosmopolitan and visionary. Protection is national and practical." This is about the way Frederick List argues in his "National System of Political Economy," and he strikes me as the abjest of the protectionists. The proposition of Mr. Clymer shows one possible alternative to the course actually followed by Congress. It would have been entirely practi- cable to have separated the question of revenues from that of protection. We could have afforded protection by boun- ties to home manufacturers, and have encouraged them by awards of large prizes of one, two, three, or even four hundred thousand dollars for improved industrial processes and for superiority of product. This is a plan which could be more easily carried out than our tariff system, and if pro- tection is desired, the more carefully it is examined, the more it must commend itself to the impartial student. Foreign producers would not be excluded, but the bounty could be made to equal the disabilities of a state of infancy. We would pay it with open eyes, and would know precisely what our infants cost us, and could balance this burden over against the advantages which they confer upon us. We could watch the progress of manufactures from the state of infancy through youth to full maturity, and make bounty at every period proportional to its own weaknesses as com- pared with the strength of foreigners ; and we could do this with full consciousness of what we were about. Or we might exempt all manufacturing establishments, like federal bonds, from all taxation, national, state, and local. As all foreign manufacturers are staggering undei a heavy load of taxation, this would be an immense help to INFANT INDUSTRIES. 57 riome producers. This would have been probably bettei than the bounty system. If, in 1816, manufacturers had been relieved of all taxation, it would seem that they could scarcely'ask for more assistance, for, at that time, the cost of transportation was so high that distance itself was a great protection. It must also be remembered that profits of /-. ^ manufacturers had been abnormally high during the war period, and they had no right to complain if obliged to work for a time without profits. Finally, it must not be forgotten / that protectionism jtself raises the cost of many, things man- * j ufacturers use, and inso far defeats its own end. It is prob- able that~manufacturers were unduly alarmed in 1816, and that many of them could have survived without any increased *** protectionism. We could in this case also ascertain th^Lj exact amount of our_burden. We might assess all manufac- c^ turers so exempted from taxation every year, and by calcu- /Z lating what they would pay if not exempted, we would know y. how much assistance we were giving. Prices would not be *~JF raised by this sort of protection to infant industries. *V These devices are mentioned as possible and practicable alternatives. It is not intended to recommend them, nor is it desired to condemn them in this place and at this time. 3 Still another possible alternative in 1816 was to let the manufacturers shift f9r themselves, like other people, and adapt themselves to changed conditions as best they might. More will be said about this plan hereafter. It is undoubtedly true that free trade does not bring the ^advantages to any nation which it would could perpetual peace be maintained for all time. International industrial relations are disturbed by war, and great suffering ensues. Our late Civil War affords an instance. The employe's in the cotton mills of the north of England suffered terribly because the manufacturers could not obtain then: supplies of 58 PROBLEMS OF TO-DAY. cotton from our South. This produced a so-called cotton- famine. Such things are liable to happen, so long as war continues among men, and this is a real, substantial argu- ment for international arbitration. It is not easy to see, however, how high protective tariffs are going to remove the evils of wars. If each country makes itself self-sufficient industrially, it will lose the advantages of international com- merce, and will be carrying a part of the burdens of war permanently. International trade has not accomplished what Cobden and others hoped for, peace between nations ; still there is reason to believe that, on the whole, it makes for peace ; and we may, in the United States, reasonably hope that we will not often, or during long periods, be called upon to suffer the horrors of war. CHAPTER X. THE INFANT INDUSTRY THEORY OF PROTECTION ISM FURTHER CONSIDERED. I SAID in the last chapter that the proposition of Mr. Cly- mer favoring a separation of revenue measures from other political schemes showed that there was qne__possible alterna- tive to the course actually followed by Congress in the firm establishment of protectionism in 1816. There were, in fact, several alternatives described. One was the bounty / j system, and the other the plan of special exemption from all taxation, either of which, it was argued, was preferable as a scheme of protection when looked at in the light of rea- son. It still remains to be considered whether it would not have been better to have refused any interference in behalf i " of manufacturers, and to have allowed them to adjust them- selves to new_conditions as best they might, as other people are forced to do, and thus to have established with respect to manufacturers in general the policy of non-interference. This is a matter of present interest because the question of general policy is coming up again, and is certainly to be raised repeatedly in the near future. First, it must be remarked that a liberal policy with respect to trade and non-intervention in general has been injured by those ex- tremists who claim too much. Doctrinaires say government '****- ** should do as little as possible, and that is the best govern- /fctxt< ment which governs the least. Yetjyhen we see the JEngh'sh ^JL laboring classes elevated by factory legislation protecting the /? 60 PROBLEMS OF TO-DAY. laboring classes by restricting the labor of women and chil dren and prohibiting " pluck-me stores " and payment in kind, and thus the theories of radical socialists like Carl Marx_discredited, for they_ say that the workingmen have nothing to hope from the present state ; when we witness somewhat similar beneficial effects in Massachusetts and New York, and when we reflect on the inestimable benefits of our free public school system even when viewed exclu- sively from the standpoint of material wealth ; when we learn Q that, doctrinaires to the contrary notwithstanding, municipal- ities are to an increasing extent supplying themselves with gas v . without the intervention of corporations, and that with the most satisfactory results ; when we contemplate aU these things, we are too inclined to reject the entire policy of non- intervention and favor government interference everywhere. It is necessary to discriminate. One law governs those pursuits which are monopolies, anotneTTriose which are always subject to the steady, constant pressure 'of compe- tjjjion while yet a third principle prevails' with reference to labor,' arjdift-generSl it may be said of pursuits which are stronglycompetitive that competition is in the main a sufft- cientregulator, and that, so far as they are concerned, that government is best which governs least. " During the present century," says a discriminating writer, " two great discoveries have been made in the science of government. The one is the immense advantage of abolishing restrictions upon trade, the other is the abso- lute necessity of imposing restrictions upon labor." He would have expressed his meaning more clearly if he had said " upon labor in behalf of labor," for he had in view regulations increasing real freedom. While, then, only an extremist will support the proposition of non-intervention as of universal application, the impartial ftjM? / ^N k '* : ^ ^ Yf oS PROTECTIONISM FURTHER CONSIDERED. 61 student of American affairs can hardly fail to see his inclina- tion strengthen in favor of letting commerce and manufac- tures take their own course without legislative interference, the more minutely he examines our present condition and its historical antecedei ts, for he will find that the best-laid plans for fostering infant industries and building up a bar- rier between American labor and the so-called "pauper labor " of Europe come to naught. It is scarcely possible to carry them out, and m the end the hard-working, thrifty, industrious class of employers and employe's alike are ham- pered in their efforts to gain a livelihood, while enormous trusts and syndicates are formed, crushing as with an iron hand the independent manufacturer, and grinding down American labor by bringing into competition with it ignorant and lawless European hordes, which have been brought into the country free of all duty. The infant industry theory of protection finds its classical statement in these words of John Stuart Mill's treatise on political economy : " The expenses of production being always greatest at first, it may happen that the home pro- duction, though really the most advantageous, may not become so until after a certain duration of pecuniary loss, which it is not to be expected that private speculators j should incur in order that their successors may be benefited by their ruin. I have, therefore, conceded that in a new country a temporary protecting duty may sometimes be eco- nomically defensible ; on condition, however, that it be strictly limited in point of time, and provisions be made that during the latter part of its existence it be on a gradually decreasing scale. Such temporary provision is of the same character as a patent, and should be governed by similar conditions." This is precisely what during the first half of our national 62 PROBLEMS OF TO-DAY. existence we proposed to do, and, as has been stated, tariff laws were limited to a few years, and laws have actually been passed contemplating a gradual reduction of tariff duties, with the intention of entering upon a permanent yA free-trade period. But our history has been of such a char- acter as to lead one to^ ^practicability of the infant industry theory. A tariff law passed for two years is ex- tended and duties raised before we scarcely enter our national existence, and the/fate which thus overtook Ham- ilton's " temporary " incj&ise of duties has been repeated again and again. It is true that aj-ational jystem of federal financiering might have helped matters somewhat, but even if we should be led to adopt better financial methods, have we reason to hope that experience in the near future will be different ? The theory of our institutions is that municipal councillors, state legislators, and federal congressmen meet to discuss the public welfare calmly and impartially, and to pass such laws as they may regard beneficial to the people. The truth is, the initiative in legislation in general does not come from the legislator, but from the pressure of some powerful external special interest. Go to an ordinary legis- lature or city council with a measure, and you will be asked who is back ofjt. who wants it passed, and what is the con- sideration? If you simply come with the general welfare at heart, and have no great organi/ation with votes at your back, your reception will be a cold one. Now so long as this is so, how can it be expected that governmental aid will be withdrawn just in proportion as those who receive it grow strong? That is the theory ; but on the contrary, the pressure for aid increases as strength increases. Can one instance in all the history of the American tariff be adduced where pro- tection was offered to aid in the establishment of an industry not already in existence ? I think not one, yet this is what PROTECTIONISM FURTHER CONSIDERED. 6j the theory calls for. The idea is that after canvassing the sit- uation, congressmen say : " Our natural resources are such that we ought to have a beet-root sugar industry, for exam- ple. Yet not a trace of such industry exists, on account of the enormous difficulties in the way of its establishment. Let us, therefore, tax imported sugar to give our would-be producers a chance." The actual practice is this : Representatives of powerful establishments go to Washington and say : " We have large paper mills in the Connecticut valley or elsewhere, and we wish to be protected against foreign competition." It will readily be seen how akin this is to the monopolistic spirit, for monopoly means simply absence of competition. Several thjngs_are proved by this brief sketch which any one specially interested will find more amply demonstrated in Taussig's " Protection to Young Industries." Dne is_that protective tariffs did not give us our manufactures. They came into existence without it. The question of free trade versus protection is not at all a question of manufactures or no manufactures. Nor is it a question of a diversified or homogeneous industrial life. We see, further, that protective duties once established tend to increase, and that a treatment of the tariff in accordance with scientific principles is at least very difficultj if not im- possible. A recent careful writer says that the theory of pro- tection is not altogether erroneous could it be applied, but he holds that no modern parliament or congress can be trusted to apply it, and on that account he rejects protec- tionism in practical politics. Why is it that the more protection one has, the more one wants? The reason is this : Manufacturers maybe divided into several classes with respect to profits. There are those advantageously situated and skilful and energetic great M PROBLEMS OF TO-DAY. industrial leaders. These men require no special help, and they belong to the first class. There are those whose profits are a little smaller on account of inferior natural advantages or inferior mental qualifications. These are manufacturers of the second class. So profits descend until in every pur- suit you find those " on the ragged edge " who but just live, who barely "keep their heads above water," as we say. Prices are high enough to enable these manufacturers of the lowest grade to^liye, an d the profitableness of another business is measured by the differences between its cost of . production and the cost of production in those establish- . ' . " ments which just keep alive ; so the lower the scale of inef- ficiency, the higher the profits of the favorably situated. Let these lines represent the various grades of manufactures in the United States : Profits of class i will be measured by the distance be- tween i and 6. Now, if you wipe out 6, it must be by lower prices, and thus will the abnormally high profits of class i fall. Now, under a system of free trade, the opera- tions of those advantageously situated will be extended and those working inefficiently will be compelled to exert them- selves and produce better and cheaper goods or to change their occupation. The question, then, at issue is this : Shall we have only manufactures of a high degree of efficiency, or shall we also raise up and keep in existence an inferior class of men? Manufactures we are certain to have, for we are more advantageously situated than other countries with re- PROTECTIONISM FURTHER CONSIDERED. 65 spect to some branches of industry, and there is probably scarcely any line of manufactures which could not be pur- sued in some favored spot by some one. Now it must be manifest that the more efficient the labor and capital of the country, the more we will all have to enjoy and the greater our opportunities for leisure. What is pro- duced now is not sufficient by any means to satisfy all rational wants of all men. Much more must be produced for that purpose, and if what is produced is often not con- sumed, owing to the absence of purchasing power on the part of the masses, this is another matter, and the difficulty cannot be remedied by protective tariffs. The extension of aid to manufactures in 1 8 1 6 accustomed us to look upon it as our duty to tax ourselves for the bene- fit of certain pursuits ; whereas, if they are natural to the country and desirable, they can be profitably established . without help. The pauper spirit has been nourished and it appears to have worked like free soup-houses on the poor. Some business men, instead of bending all their energies to the production of cheap and good commodities, are always ^\jtt plotting to get something from the public purse. Thus towns are induced to bid against one another for railroad facilities, and our federal government has been pursuaded to part with the heritage of the people " to encourage " rail- road building ; whereas it would seem desirable, if we, the people, pay for the roads, that we should own them. When changes in productive processes injure skilled work- ingmen, we say they must suffer quietly and be content, be- cause the general public gains. If a type-setting machine should render the skill of type-setters superfluous, it would produce immense suffering, but we would not subsidize them from the public treasury, or levy a tax for their benefit of one hundred and fifty per cent, on those using the machine. 66 PROBLEMS OF TO-DAY.. Workingmen, on the contrary, are severely rebuked when they resist improvements. When the elevated railroads in New York injured property- owners, the clairrj fof"damages was resisted on account of the public goQtk^ So, at the close of the late war, thousands upon thousands of farmers were well-nigh ruined, and many of them completely so, by the contraction of the currency, which lowered the price of their farms and raised the value of all existing mortgages until often the mortgages equalled the value of the farms. Yet farmers were not indemnified on account of their loss. Is it not, then, better to excludefayoritisrn in legislation, and to let each industry stand on its own bottom? CHAPTER XI. PROTECTIONISM AND LABOR. AS time went on, the plea that protection should be af- forded to the " infant industries " of the United States grew ridiculous, and its advocates began to cast about for an argument which would meet with some other reply than a sarcastic smile. Manifestly the period of infancy must end spme_jime, and the infant industry argument is based precisely on the hypothesis that protection is merely a tem- porary need. The infant industry plea is not often heard now, and may be regarded as decidedly antiquated. Yet occasionally echoes of the old war-cry of the protectionists are still heard. Although they are so feeble as scarcely to deserve notice, it may be well to devote just a word to them. First, one hundred years of protection ought to have de- veloped our industry beyond the stage of infancy if protec- tion ever can do it. Second, the arguments which make for protection to in- dustries in a young anoT enterprising but poor country, and which, indeed, in such cases, if intelligently applied may justify it, no longer hold in the UnitemalL Now, there are those who want to tell us that men working under superior conditions cannot hold thejj^own against those working under inferior conditions. Is any one disposed to dispute the fact that our conditions are more favorable for the creation of wealth? A little travel and careful observation in foreign lands must be suf- ficient, I should say, to convince any fair-minded person that our natural facilities are superior. Barren hillsides are cultivated in Germany which would in America be neg- iected.. Why is this so, if not because the American farmei 84 PROBLEMS OP TO-DAY. can do better than to expend his labor and capital on bar- ren hillsides? Take railroad building. The grand oppor- tunities for investments in railroad construction have in Europe already bejm seized, and new investors are obliged be content with small returns on insignificant branch Go into an English or a German town, and you will capitalists and laborers eager for opportunities which Americans would despise. Why? Simply because the grand opportunities in oTd~countries are very few. This may be /_ looked at from a still different standpoint. Will it be dis- puted that the total wealth created in the United States is large in proportion to our capital and our population ? If not, then the entire point is conceded. The tariff laws create no new wealth, and our larger wealth creation can only be traced to our better advantages. I desire, as soon as possible, to tell my readers what 1 think ought to be done at the present time with respect to the tariff, but I must beg them to be patient, because so much ground must be cleared of undoubted fallacies before it is possible to take a rational view of the protective tariff; and when the word "fallacies " is used, reference is had to things which no man can belieye when he once turns them 'over in his mind and carefully analyzes them. These fal- lacies, in fact, frequently amount tc\absurdities, and all the absurdities by no means proceed from the protectionists. However, I desire now to call attention to the fact that England and Germany could not ruin all our industries, even if their advantages were in everything superior to ours. Many will say if foreign countries can produce more than we with a given amount of labor and capital, they will drive us out of the world's market, and even capture our home markets. But how is this possible? Will they supply us with commodities and take no return for them? If tha> NO SUBSIDY NEEDED. 85 were true, the backward nations of the world would indeed have an easy time of it, for other more highly developed nations would supply them with commodities for nothing on account of their inferiority. If, however, something is ** taken in return, then the production of that something will _ furnish opportunities for labor and capital. Perhaps, it will * be said, they will take their pay in money. If they do this, the precious metals begin to leave us, prices will fall in our country and rise elsewhere, and it will thus become profit- able for foreigners to buy our commodities, which wouTd again turn the stream of precious metals back to us. The truth is simple. It "is~ relative advantages, and not absolute advantages, which determine the course of inter- national trade. If England can with ten days' labor pro- duce either one hundred bushels of wheat or two hundred yards ofjvoollen cloth, and with the same labor jve_can pro- duce sevgnty-five bushels of wheat or one hundred yards of woollen cloth, England will not on account of her superior- ity furnish us with both wheat and cloth. She will furnish us with that commodity in which her advantage is greatest, and we will send her that in which our inferiority is least ; in other words, we will exchange our wheat for English cloth. Both England and America will gain there- Each will do that for which nature has best fitted her. iis is the way exchanges naturally take place between nations. One may be superior to others in well-nigh every branch of production, but each one will seek to find those pursuits in which it has relatively greatest advantages. The wealth of the world will thereby be increased. Had Eng- land accepted our offer of reciprocal free trade in 1783, and had free trade always obtained, we would have had manufactures ; but it is doubtless true that a larger portion of our labor and capital would have been devoted to 86 PROBLEMS OF TO-DAY. agriculture, and farming would be a more flourishing pur- suit, for it is in agriculture that our relative advantages over European countries are most conspicuous. While notpre- pared to join without qualification in Jefferson's laudation of agricultural pursuits and his condemnation of manufactures, I cannot but think we would fare quite as well if our change from an agricultural people to a manufacturing people were not proceeding with such a hot-bed rapidity, and if our cities grew in size with a more regular and less feverish haste. Has not, indeed, this unprecedented increase in the / population of cities been one of the chief causes which have made them so corrupt and depraved that they are regarded as a menace to our civilization? t* CHAPTER XIV. THE IMPORTANCE OF A WIDE DIFFUSION OF ECONOMIC KNOWLEDGE, WITH A FEW INCI- DENTAL REMARKS CONCERNING A GOVERN- MENT TELEGRAPH. IT was seriously proposed a few years ago to introduce^ the study of political economy into the public schools of Belgium, and there can be no doubt that in a country ruled by popular vote it is of the first importance that the people should receive some training in early life in the ele- ments of that science which is concerned with the funda- mental conditions of national prosperity. A very little knowledge of practical economics would make us a happier and a still more prosperous people, and it is not necessary for one believing this to hold exaggerated notions regarding the achievements of political economists. Political economy, if it were more generally understood, could not prevent all strikes and lockouts, but even a slight knowledge of the nature of industrial society would do away with many of the senseless controversies between labor and capital which are so great a loss to us all. Political economy is not in a posi- 1 tion to give an absolute and unqualified answer to the ques- 1 tion, Shall we have a government telegraph service or a private service in the United States at the present time? Familiarity, however, with such discussions on the part of the people would make much that we hear on the subject impossible, and force the advocates of various measures to bb PROBLEMS OF TO-DAY. confine themselves to valid arguments, and thus to help us to arrive at a rational decision. A presentation of the claims of the Western Union Telegraph Company at Washington a few weeks ago has attracted a great deal of attention, and yet this presentation involved an error which to one who knows anything about the principles of the telegraph service is as palpable as the assertion that three times six are nine- teen is to one who knows the multiplication table. Nowhere else, it was maintained, can a message be sent so far for so little money. But what has distance to do with proper tele- aph charges? Why should more be charged for sending a message a long distance than for sending one a short distance? Does any one imagine now that anything is carried? There is a slight difference in cost between messages sent for a long distance and a short distance, especially if it is necessary to " fonvard " or re-telegraph the message, and the greater length of lines involves a small additional investment of capital. Nevertheless, the differ- ence is a minor majtter. and, with the exception of Russia, and /Turkey, every country in Europe disregards it, and has one charge for all domestic telegrams regardless of dis- tance. It is like the case of the post-office. Rowland Hill introduced his celebrated reform, the penny-postage system, by analyzing the expenditures for carrying letters and presenting the results of his investigations to the public. It costs something for the post-office to receive letters, can- cel-lhfi-Sta? 3 ) sort them and send them on the way. It costs something at the other end of the route to sort and deliver the letters. Here are two elements of the total cost, and the third is actual_Jransportation, and this Hill showed was on each letter sc> insignificant that it could advanta- geously be neglected altogether. Thus cost was seen to be nearly identical for all letters, and the true interests of all ECONOMIC KNOWLEDGE. 89 were promoted and administration simplified by one uni- form charge. Similarly, we have one uniform charge in most countries for telegrams, and this is 12 cents for 12 words in England ; in Germany, 1 7 cents for i o words ; in Belgium, 9 cents for 10 words. Germany's charge is the highest, I believe, in Western Europe. Now, what about long-distance telegrams ? No European country outside of ^ ** ' " ' "" * ' "~" - ^ Russia has any long distances like ours, and when a tele- gram is sent three or four thousand miles in Europe it be- comes an international telegram, and charges on interna- tional telegrams are based on different principles, and are, very pj^rjerly, higher than for domestic telegrams. The receipts on international telegrams must be divided between two or more countries, and are higher on that account, as well as for other reasons, on the same principle that it usually costs Tnore to send a parcel a given distance when it passes through/ the hands of two express cWipanies than if it is carried the whole distance by one. It was further asserted that the telegraph service, was a loss to England. It was not mentioned that this is due to I two simple facts : One is, that England paid an exorbitant H price for her telegraph, and that the interest on this outlay is reckoned among expenditures ; and the other, that there had been a recent reduction^ of fifty per cent, in charges, and, like post-office reductions in charges, the first effect of such a measure is sure to be a loss, although in a few years a profit results therefrom. Neither was it mentioned that other countries derive a profit from their telegraph ser- vice. All these are a few simple elementary facts, and yet, - . through ignorance of these, a people may be easily deceived. "Stntr .(/ The Sun recently mentioned a matter in this connection ^\JU/^ which is worthy of serious consideration, and that is, the ff -f increased patronage. The Sun did not commit itself, but 90 PROBLEMS OF TO-DAY. simply called attention to the matter. Other newspapers have, however, spoJceji__pjF_it_jis_ an insuperable obstacle in the way of a government telegraph. Yet familiarity with economic discussions ought to show one that there is an- Dther aspect to the case. Our federal civil service is bound |o increase, and there are those among my readers who will live to see it double its present dimensions. This is inevi- table, because the expansion of the country must bring with \t increased federal business, unless, indeed, all government business, army and post-office included, is handejiover_to private corporations ! Now, it strikes me that the real Janger is this : that our civil-service force will gradually and Imperceptibly grow until we have 100,000 more federal employe's than at present. That is precisely similar to what has happened before. A danger which creeps upon us inawares is a serious one. Should, however, our federal Employe's be increased by 18,000 at once, that would force apon the attention of the people the principles of sound administration, and the danger of an abuse of political power for partisan ends. The result could hardly fail to be most salutary. Although this is a somewhat longer digression than- 1 in- tended, I do not regret it, for there are certain aspects of the tariff^ question which can be profitably treated in con- nection w:th other problems of the day, and they will be so treated in this and some of the succeeding chapters. The whole topic of the desirability of a wide diffusion of eco- l nomic knowledge was suggested by the receipt _of a_protec- , tionist campaign document while I was writing my last ' . ' chapter. This was addressed "Tg the Laboring Men^of the United States," and is so full of popular fallacies that it requires a somewhat lengthy treatment. It is one of the things which are only possible because in industrial affairs ECONOMIC KNOWLEDGE. 91 people have not yet got so far as the multiplication table, and do not know that three times six are eighteen not nineteen. It is not the question of free trade or protection. but the question of valid arguments, and rational action must proceed from such arguments. Again, it seems neces- sary to protest that no one contemplates any action which will overthrow manufactures that have grown up under a protective tariff. There are reasons why that should not be done, and why all the industrial interests of a country would suffer if that were done. These will be presented in due time. Now we are concerned with the campaign document which lies before me. "The receipts of the government." it is stated, "are more than necessary tojpay the expenses, consequently they must be reduced by the enactment of new tariff laws. The n __ Democrats propose to lessen the receipts by reducing the tariri, ana this will flood the country with foreign goods made by the pauper labor ; of Europe, and must "necessarily take that much labor from our American workingmen. The /j Republicans propose to reduce receipts by abolishing the in- ^~ ternal revenue tax laws and raising the tariff on foreign goods to such a point as to prevent them coming into our country, and thereby give to our workingmen the right and privilege of making goods to supply our home markets. Every article brought into this country that took ten days' labor to make it,~taice&Just ten days' lahqr from nnr p^nple - } this fact is too plain to be contradicted. The free-trade ^ capitalist wants the tariff reduced, because his money will ^s> then buy more of the products of labor. In other words, he says to you, ' I want the privilege of buying wherever I can buy the cheapest, and with free trade you must work for the same wages now paid the pauper labor of Europe, or I will buy European goods.' With a tariff that will protect 92 PROBLEMS OF TO-DAY. our American industries, there will be such a demand foi that legally organized labor can demand of their em- -ployers fair and just wages ; but with a lowjariff you render it impossible for your employers to pay you good wages, be- cause they must sell their products in competition with the products made by the low wages in Europe. In the first nine^ months ofTSSy there were about 1,500,000 tons of for- ^ eign ironjjrought to this country. Now, if this iron had J been made__here, it would have given out $32,000,000 of wages to our own workmen, and that would have employed during that time 80,000 men. This is but one article of manufacture, and so it is with a multitude of other articles now coming into this country, but which your votes can . keep out. This country should make laws to protect our own workmen, and not the workmen of England and Europe." This ogens^up a great question, the ramifications of which affect our daily life in a thousand ways. I mean the relation which exists between spending money and giving employ- ment to labor. This will be considered in the next chapter. CHAPTER XV. THE SEEN AND THE UNSEEN. * SHALLOW as he was, Frederic Bastiat undoubtedly said many good things, and is entitled to our gratitude for having cleared up, as no one else, some of the first princi- ples of economics. Perhaps one of hishappi est efforts was his exposition of the difference in industrial society between that which is sen and that which is not seen. A worthy shopkeeper, Jacques Bonhomme, is enraged because his careless son breaks a pane of glass, while the spectators who gather about the scene offer the father this consolation : " It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken ? " Who among my readers has not heard similar expressions of opinion ? And how many of them are there who do not feel that there is a certain justice in the view of the indifferent but good-natured spectators? I re- member a report which reached me three years ago that a warehouse in Baltimore was destroyed by fire. I was in a small company at the time, and a young woman, of at least average intelligence, made the remark, " It_is time the old building ^h'd jDurn_dp,wii, and give workingmen a chance to get employment. It has been standing the last fifty years." Some time previously a good friend of mine, a lady of con- siderable means and a devout member of one of our leading churches, told me that she considered it the duty of the wealthy to spend money on dress, in order to give employ- 94 PROBLEMS OF TO-DAY. ment to labor. A clergyman whom I esteem was recentl) reported as raising objection to the Charity Ball on religious grounds, but admitting that, after all, it was a good thing for dressmakers and other employes who were engaged on the elaborate toilets, as well as for the merchants, who sold thou- sands of dollars' worth of goods. At the close of the last_chapter I made a quotation from ; a high-tariff campaign document to the effect that ij^oo^ooo 1 tons of iron brought to this country from Europe ought to have been produced at home, as in that case 832,000,000 would have been spent for wages in our country and 80,000 men would have received employment for nine months. Let us examine these various opinions with some care, for they are all closely related. Certain phenomena are seen in each instance. The glaziejrjgcen es six francs for putting in a new pane of glass, and he js happy because he has an opportunity to earn some money. The warehouse burns down, and bricklayers, carpenters, and masons are employed for several months in putting up a new building. The wealthy lady spends $2W Jfqr j^single dress, and the mer- chant who sells the material, and the dressmaker, are both pleased, precisely as those are delighted who minister to the wants of the belles at the Charity Ball. The high-tariff peo- ple shut out foreign products and point to our busy work- men engaged in manufacturing those things which, but for the tariff, would be imported. All these things are seen and observed of all men, but there are other phenomena of equal importance which pass unnoticed. Jacques Bon- homme, the shopkeeper, was just on the point of ordering a new pair of shoes for his wife, for which he expected to pay six francs. These shoes he is now unable to order on ac- count of his loss, and the shoemaker misses his opportunity to earn six francs. This is that which is not seen, but it is THE SEEN AND THE UNSEEN. 95 beyond all controversy that no additional employment has been given to labor because the careless son broke the pane of glass. The shopkeeper's wife is, however, put to the shamejm^jTUDrtification of wearing old and patched shoes ; and from all this we see that society is poorer on account of the broken pane of glass. There is a smaller quantity of commodities to be enjoyed by the various members of the community than there would be otherwise, and suffering en- sues. So it will likewise be discovered that loss and waste in the other cases are simply loss and waste, and no amount of sophistry can make them anything else. We see the men putting up ajiewjauilding on the site of the old, but that which is not seen is a decreasedjexpendi- ture somewhere else, and yet there is scarcely a doubt about this. Possibly the insurance, company which sustains the > loss decides on that account not to constaicta nr that in payment for this 30.000,000 bushels of wheat leave the country, and that the farmers find a market for their ^ produce which would otherwise be closed. Our business men are talking about foreign markets, but is any one in- sane enough. to think that we can sell to foreigners unless we import from therri? And what would be the object in such proceedings in always sending goods away from the country and never receiving any ? The thing which is not '^vyy^ seen is that if we stop importing we rpust stop exporting. and that if we stop exporting we deprive our own home **f-f~* labor of employment, and transfer employment which Amer- ican labor might have to the so-called pauper labor of Eu- rope. Ought it to be necessary to dwell on this in Bal- timore ? Would we not have a flourishing trade with South America in our own city did not the tariff render it impossi- ble to import goods from South America? And is it not true that because we cannot import goods from South America we cannot export them? For how can shipping Jj thrive unless it has cargoes both ways ? And as we cannot export to South America, are we not depriving American labor of employment? Is there any one who would like to see us abstain from all dealings with foreign countries? If it is good for us to keep all our money at home, why is it not good for one sin- gle state to abstain from all dealings with other states ? And if good for a state, why not for a city? Let us build a high wall about Baltimore, and shoot the man dead who comes in or goes out. That would keep our money at 8 PROBLEMS OF TO-DAY. home. But why should not each family be sufficient unto itself, and keep all its money at home ? I am a practical farmer. Is it not foolish for me to send money away from home for butter, eggs, potatoes, chickens, hams and the like ? I could raise them if I desired. Why not do this ? Because my timeis^ worth more for other purposes. It is only in a state of complete barbarism that each person is suf- ficient unto himself and avoids exchanges with his neighbors. Now if it is profitable for an individual to find out those things for which nature has adapted him, why is it not ad- vantageous for the people of a city or state or a nation to find out those things in the production of which the Al- mighty has given them facilities, and to exchange surplus products with the surplus products of other cities, states, and nations ? Surely it is thus that the most abundant opportuni- ties will be offered to labor to find employment ; not merely that, but the largest possible returns for its services will thus be secured. CHAPTER XVI. THE BASIS OF THE CLAIMS OF POLITICAL ECONOMISTS. *' A FAULTY political economy is the fruitful parent of ~\. crime." This is one of the wisest of the many wise sayings of 1 )r. Thomas Arnold. Everybody acts uponjjome theory of political economy, for it is impossible for a rational man to play his part in industrial society without having some reason for his actions. A man who acts without rea- son for his actions we call either an insane man or a fool. But as soon as a man puts his reason for an industrial action into words, he explains the economic theory which under- lies the action. Everybody must in the nature of things be more or less of a political economist, and consequently more or less of a .theorist, for to act without theory and without reason are one and the same thing. Of course, the reason given for an action may be valid or it may involve all sorts of fallacies. Equally, of course, the theory of in- dustrial action in a given concrete case put forward by a business man may or may not be sound ; but the moment he begins an argument he becomes a theorist. Economic theory treats simply of the principles which govern action, and in its last analysis is based upon experience. A news- paper published within a thousand miles of the Baltimore City Hall has of late had much to say about free-trade theo- rists and professors_of political .economy, who are teaching * their classes free-trade doctrines. I propose to make no , 100 PROBLEMS OF TO-DAY. special comment on these various squibs, which are both amusing and entertaining ; but it may be well to say a word about the claims of political economists in general, and about the basis on which they rest, for these are involved sooner or later in all economic discussions, political econ- is concerned with the facts of industrial life which it ,^, attempts to arrange, classify, and explain. This involves a treatment of past industrial life, the forces which have been at work and which have made it what it is to-day ; finally, an examination of those forces now at wqrk. and which are ^shaping the future. But why, it can be asked, should politi- v^ cal economists presume--iQ instruct business men about the facts of industrial life when business men are all the time engaged in industrial life and make it what it is ? Let us see. You converse with a business man in Pittsburg, Penn- sylvania, about those aspects of business which concern the 4^ public, and he will very likely give you a theory which he A will claim is impregnable because it is based on facts with which he is thoroughly familiar. No political economist can convince him, he will tell you, that his theory is not sound, for he \knows that it is. Very well. Now go to New York and converse with a business man, and he may dogmatically lay down exactly the opposite^theorv. of which he is quite & as positive, because, as he says, he knows the facts. Thjs jpr may suggest an explanation of the functions of the political yjj economist ; and, when even in the same city you find busi- *}r ness men of different occupations holding the most contra- dictory opinions, it becomes evident that it would be desir- able to have a class of men with a larger acguaintance with facts to stand between these jarring factions. This is pre- cisely what political economists attempt to do. A thought- ful business man must often feel that he is in the position of a*jnan in a dense forest who, as the proverb has it, can only J THE BASIS OF POLITICAL ECONOMY. 101 see the individual trees and not the forest at all. A politi- cal economist is rather in the position of a man on an eleva- tion who overlooks the entire forest and gets a better gen- eral view than one in the midst of it, and can better tell him how to escape from the forest. But this also suggests some- thing else. The more minute and detailedjcnowledge of the man in the forest itself is^of importance^ Should he without reflection follow the directions of the man on the hill-top, he might find himself hopelessly stuck in a quagmire which could not be seen from a distance. Both the general and the special knowledge are required ; and political econo- mists who fail to accord due respect to the special informa- tion of the man of affairs fall into most grievous error. Mavq Latrobe acted with a full appreciation of this fact, as it seems to me, when during his last term he selected the members of the recent city ta.y commissjojn, for he chose a representative of_ business, a representative of the Jaw, and a representative of the science which deals with taxation. Industrial society, or, if a more popular term is desired, the business world, is a thing which grows like a plant or an animal ; and careful observation, coupled with accurate in- ductive and deductive reasoning, enables us to discover the laws of its growth, its health, and its disease. No organism is, however, more complex ; and political economy is still in its infancy, and while worthy of attention, its teachings must undoubtedly be accepted with more or less caution. Politi- cal economists, it is^true, Differ in important particulars ; but I suppose these differences are not more radical than those of physicians, or, in fact, than those of many other scientific men, while it may be said that those respects in which there is substantial harmony among them are still more important than their differences. Now when, as is the case in the general view taken of commerce, there is something ap- *jj 102 PROBLEMS OF TO-DAY. preaching substantial unanimity among economists, it is not unreasonable to claim that this view deserves at least as much attention as it receives. When a political economist sets forth his opinions, it should be remembered that these are not merely his individual opinions, but opinions formed in the light of a science which, if it is still in its infancy, has nevertheless been pursued for one hundred years, and has received contributions from some of the brightest minds of modern times. Nor, when it is considered that the science which deals with human beings living in society and consti- tuting a living organism is the most complex and difficult 'of all sciences, can it be claimed that its progress has nqt on the whole been encouraging ; while it is probable that this progress is at the present time more rapid and more hopeful than it has ever been before. It is further ppte- that political economists have not been " mere theo- " if by that is meant men who have had no practical experience outside of their own specialty. I have, on the contrary, been struck by the fact, in reading the biographies of political economists, that they were as a rule good busi- ness men, some of them winning great distinction in pursuits which are ordinarily called " practical." There is Ricardo. f r example, who on the English stock exchange outstripped all his competitors and won so large a fortune at an early age that he was able thereafter to devote himself exclusively to intellectual pursuits. Few men have done more for economic science, though strange as it may seem, this piac- tical business man was the most purely abstract and theo- retical using that word in an ordinary sense of all political economists, and did harm in leading political economists away from a careful observation of actual expe- ienceT Then in England we may also mention Henry Fawcett, professor of political economy in the University of THE BASIS OF POLITICAL ECONOMY. 103 Cambridge, probably the best postmaster-general England " ever had. Robert Owen, extremist and radical though he was, made, it seerris to me, some important contributions to economic science \ and he was for a long time regarded as the most successful cqtton manufacturer in Great Britain. He was often spoken of as a " cotton prince," just as we call certain men railway kings. One of the most excellent ~^' ._ o works on banking was written by J. W. Gilbart, formerly director and general manager of the London and West- minster Bank, one of the greatest banking houses of London. " Lombard' Street, a Description of the Money Market," is one of the standard works in economic literature, and it was written by Walter Bagehot^ who was a practical financier. as was the author of "The Theory of Foreign Exchanges,'*! the Right Hon. George J. Goschen. When we turn to Germany we can find scarcely one economist of note, I think, who has not taken some practical part in the government of his country, or of some of its local polit- ical units, and that, so far as I have learned, with uniformly beneficial results. Political economy has until very re- cently been in a backward position in our own country, but it is now rapidly taking a better position as a practical science. One of the American contributions to economic science is the work " United States Notes," by Hon. John Jay Knox, whose reports as Comptroller of the Currency are among the best things written on our banking system. As president of "The Bank of the Republic," in New York, it will be admitted that Mr. Knox is now doing the work of a " practical " man. Our national banking system itself, one of the best which the world has ever seen, is to no inconsiderable extent due to Dr. McVickar, formerly professor of political economy in <- ^ ,-. Columbia^Cojlege. Gen. Francis A. Walker is to-day one ' ' * 104 PROBLEMS OF TO-DAY. of the most distinguished political economists, and as he has, in addition to other services, brought the Massachu- setts Institute of Technology :nto the front rank of such institutions, he ought to receive the respect of the commu- nity as apractical man ; for I will venture to say that to manage successfully a great institution of learning requires as profound a knowledge of men and affairs as it does to build up a great commercial or manufacturing establishment. Dr. James, of the University of Pennsylvania, has written the best treatise in the English language on "The Relation of the Modern Municipality to the Gas Supply," and by his oppositiorTto the sale of the municipal gas-works of Phila- delphia has saved that city millions of dollars, and this strikes me as an extremely practical thing to do. The best treatise on public debts in any language is the work of Dr. C. Adams, professor of political economy in the University of Michigan ; and to write an excellent work on so practical a topic is certainly practical. The truth of the matter is, political economy is a body of knowledge as yet incomplete and imperfect, still of vast im- rtance, which has been built up by the labors of those on one hand who were primarily business men, and secon- darily political economists, and on the other hand by those who were primarily political economists and secondarily business men. While it may. be__. true that political econo- mists have ofteji failed to ^give due weight to the special de- tailed knowledge of those who are exclusively men of affairs, it is equally true that we have suffered serious loss a loss amounting to hundreds of millions because business men have so often failed to master general economic principles. Business needs political economy, and political economy should diligently appropriate the teachings of business. Dr. Arnold said to return to my text "A faulty politi- THE BASIS OF POLITICAL ECONOMY. 105 cal economy is the fruitful parent of crime." More might have been added, for it is not only the fruitful parent of crime ; it is the most fruitful parent of folly and consequent misery. The last chapter in this work dwelt upon the im- portance of phenomena not readily seen. It seems that a few points are not yet clear. It is said " it is after all better to spend one's money in extravagance than to hoard it up." Money " hoarded up " and " locked up " is something about which we hear every day. What is meant by these expres- sions ? Who hoards np^ money ? No one in ihese days at any rate very few. Money is put in banks. Does any one of my readers imagine it stays there ? By no means. It is used in business and gives employment to labor. Take our savings banks. In, one of them there are deposits of over sixteen millions of dollars. Is this money hoarded up ? By no means ; it is all used. You see money employed in building in Baltimore, and you say it is a good thing, for it makes business and gives employment to labor. Where did that money come from ? If any reader of this article will talk with practical builders and practical bankers, I think he will soon be convinced that that is precisely the money which is in popular parlance hoarded up or locked up. One of the first things which ought to be taught in schools is that what is saved is spent. To save money does not mean to spend tess. It simply means to spend money in such a way that something is left to show for it. Take two mechanics, each receiving high wages, say $4 a day. One spends his money in having " a good time." People like him ; they smile upon him while his money lasts, but no longer and say he "keeps money in circulation." The other mechanic is careful, self-denying, frugal. " He hoards his money," but he builds himajiorne. So it is seen when one goes below the surface of things, that the money saved -m Apo 106 PROBLEMS OF TO-DAY. has after all been spent, and just as much employment has been given to labor. At the end of ten years your " good fellow " is very likely impoverished and broken down, and the thrifty mechanic has shown himself after all the better man, the better father, the better citizen. I know of nothing more pernicious in its consequences than these shallow judgments which we hear about spending money and " keeping it in circulation." It is the faulty litical economy which makes the man more popular who spends ten thousand dollars on a feast than his neighbor who " saves " ten thousand and builds six homes for work- ingmen's families. It was this faulty political economy which made the third Napoleon, the curse of his country and of his generation, so jopular in his extravagance, while the frugal court of the Prussian monarch was setting his people an example ol industry and thrift which are now making them both wealthjrand mighty, dreaded by England in the industrial field as much as by France in the military field. It was this faulty political economy which led the same newspaper to which I have already referred to suggest that a great and grinding monopoly was not so bad a thing after all, because its head men spent their money " royally." CHAPTER XVII. THE DIFFERENT KINDS OF MONOPOLIES, WITH SOME REMARKS ON THE LAND QUESTION. I HAVE dwelt upon the importance of political economy, and have endeavored to show that political economists are practical men. I mayjadd that political economy, as it is pursued to-day, is a most interesting study. " Every be- ginning is difficult," says the proverb, and this holds with reference to political economy; but when one once con- quers the difficulties of the beginning, no intellectual pursuit canbe jnore_ fascinating than that which is concerned with an examination into the nature, the development, and the desirable constitution of industrial society. It may be doubted, however, whether any one of the many topics with which it deals, is of more absorbing interest than monopolies, while it scarcely admits of controversy that no economic topic is less understood. It is necessary in a discussion of monopolies to divide them into classes,, for the principles which hold for one class will be found inapplicable to another, and any effort to lump all monopolies together, and to treat them all alike, will produce confusion, both in theory and practice. Mo- nopolies are now discussed daily in the press in their con- nection with the tariff, and trusts,, and syndicates, but it cannot be_said that the discussion produces a great amount j ofjight. It is, however, accompanied by growing indigtia- tion as the evils oLcertain monopolies are more and more < ^ t ^ . fi^ jft? p A^ T 108 PROBLEMS OF TO-DAY. keenly felt, but this indignation is as likely to produce harm *"[ as good, unless it can be directed into proper channels. ^- . While it may be claimed that the indignation is righteous, it is indeed a bold man who would be willing to say that it is enlightened. Monopolies with respect to ownership and management ly be divided into two classes, public and private. The post-office is a public monopoly and is a national blessing. The telegraph is a pr^vffi mnnojplv. and the fact that it is so is nothing less than a national calamity. Private monopo- lies are odious. They are contrary to the spirit of the com- mon law and of American institutions, and wherever or whenever they exist, are a perpetual source of annoyance and irritation. Public monopolies, on the other hand, are pro- ductive of vast benefits when confined to their own proper sphere. Modern civilization would give place to anarchy should all public monopolies be abolished. The army and navy and police are public monopolies, and when we see great corporations, as in Pennsylvania, employing private armies of their own, mercenary troops engaged of a citizen of another state, thinking people look upon it with alarm as incipient anarchy of the most malignant type. We must, then, draw a sharp line in all our discussions between public and private monopolies. But monopolies maybe_diyided into two different classes from another standpoint. Certain pursuits are monopolies on account of their own inherent qualities. These we call natural monopolies. Legislation neither makes them mo- nopolies nor can it prevent them from becoming monopo- lies. All that legislation can do is to recognize the fact that they are and must remain monopolies, and to act upon it. There are other pursuits which are made mo- nopolies by legislation, and these we call artificial monopo- DIFFERENT KINDS OF MONOPOLIES. 109 lies. Patents throw around those engaged in the manufacture of certain articles a barrier which shuts out competition. The production of a new American book is an artificial mo- nopoly, rendered such by a /copyright. Legislation could, if it were thought desirable, abolish both patents and copy- rights, and thus do away with those monopolies which they create. Switzerland is an example of a country which does not grant patents, and thus does not create by means of patents artificial monopolies. Tariffs, which shut out for- eign competition, sometimes enable home producers to form gigantic combinations which crush in a grasp of re- lentless cruelty every attempt at competition within our own borders. These combinations could rarely embrace the entire civilized world were every feature of protectionism removed from our tariff legislation. These pursuits are, therefore, also artificial monopolies, and they are daily in- creasing in number to the consternation of the public. Per- haps I ought to make an exception when I say that the increase of monopolies of the artificial sort is viewed with alarm by the public. Socialists view it with satisfaction, because they believe that competition in industry is an evil which ought to make way for complete and perfect monopoly in every pursuit. Socialists see in trusts and syn- dicates nothing but the remorseless march of monopoly, \vriicr7 they have long predicted will never cease until con- centration of business becomes complete. The last stage in this evolution, according to their doctrine, is tbe transfer of monopolized business to public controLgfta the conse- quent inauguration of the socialistic state. The capitalists engaged in these combinations are hailed by socialistic writers as fellow-sof.inHsJs. and the socialistic tendency in trusts and other artificial monopolies admit of no doubt. When we come to a discussion of artificial monopolies, we, 110 PROBLEMS OF TO-DAY. in fact, touch the only really dangerous socialism in the United States. Those who spend energy in fighting the socialism of the doctrinaires who write books and deliver lectures are, in my opinion, simply Don Quixotes attacking windmills. "The game isn't worth the candle," and that is the reason why if a personal explanation is in order I have never spent much time in criticism of the socialists. I have believed there were certain truths in the teachings of scientific socialism which it is well enough to notice, but the prospect of professed socialists ever gaining an ascendency in America has seemed to me so remote a contingency that I have never thought it worth while to spoil pen and paper and waste ink in exposing their errors. The results of years of study, reflection, and investigation have convinced me that the only dangerous socialism in America is mo- nopoly controlled byjjrivate greed. This is sufficiently im- portant to justify us in giving some attention to the views of air >.^gne of the most rational socialists, who sees the approaching Jr triumph of his faith in the " trust." I refer to Laurence (jj-nnlivnrj, who, in his new work, " Ca Ira, or Danton in the Xk FrejQch_Jevolution," speaks of the socialistic tendency of *fr business in America in these words : " Of the movements mdividuals, the most significant is that toward production on a large scale. By ' production ' should also be under- stood transportation and commerce, for they add value to the product, just as well as does the labor of the opera- fo tives on raw materials. All that is necessary here is to note K* this tendency, for all admit that production everywhere ';he most trivial as well as the most important is being concentrated in_Jhe. hjinds ofjjcher and richer employers, of larger and larger corporations. " But there is one feature of this concentration that de- serves special mention because it is novel, and as yet it DIFFERENT KINDS OF MONOPOLIES. Ill seems confined to the United States, where the capitalist system is mote^unfettered than anywhere else. It is what isT^* * called the 7\ust. This is monopoly In its most concen- trated form. Suppose the presidents of all the incorporated companies in a given branch of industry in the whole coun- try assembled, and one of their_ number in whom they all have j3ejtfect_trust hence the name selected to perform the function of\?Ayg/g/^manager. with power to determine, autocratically, how much each company is to produce, and , i. consequently its share in the proceeds, and you have the *^ ' trust.' It differs from a 'pool ' in this, that noneof the 9* parties can withdraw. The individuality which the law confers on each company by the act \f incorporation is ^ ffa mei^ecL in jhe 'trust,' over which the State has not the least ^ control ; indeed, the whole arrangement is kept as perfect **] a secret, as far as the public is concerned, as possible. . . . It is easy to see, that, when these ' trusts ' become general, and that is only a question of very short time, they will rev- olutionize our present system, for they mean the destruction of competition, which then will be utilized simply to crush their weaker rivals. Some of GUI' newspapers, on getting wind of these ' trusts,' have become jilarmed, seeing in them terrible future dangers to the State, and that, indeed, they would be ; they would institute a new slavery, the most for- midable slavery that ever existed, if evolution would stop^ there. But it will not. That is why this movement is at the bottom, zuLj&c0nsa'0us_or\e ; the capitalists engaged in in it are, unconsciously, the greatest revolutionists in the world. " Now this concentration shows us what is going to be one important feature of the new social order shows us that production on the largest possible scale will be the only practical mode of production in the future" 112 PROBLEMS OF TO-DAY. It is not necessary to dwell longer on the tremendous practical importance of a discussion of monopolies. JMo ^^problem of tOj-day is so pressing, and it is, indeed, as a part \Af of the general growth of monopoly, both a cause and a con- f? sequence of monopoly that protectionism is most deserving \5\ yof attention. \Jy We will begin the discussion of monopoly by a treatment /* of natural monopolies, because that will help to clear the field and render the characteristics of artificial monopolies more readily comprehensible. There is one natural monopoly which stands apart by itself with peculiar qualities. It is land. Land was not made by man, but was given to man ready made. It was a gift K V/\pf nature, or, if you please, of God. But so much was given, fcr and no more. The amount that, man can add to land or ^/ " , take away from it is so utterly insignificant as to be un- #frorthy of notice. The most tremendous practical conse- fvX/ quences flow from the fact that land is a natural monopoly, and the so-called land question deserves all the attention it is receiving. It deserves even more attention than it is receiving. I would gladly take up this question and dis- cuss it carefully, were it not so large a question. It would, v however, require all the remaining papers of this series even ^ to sketch it in outline. It may be said, too, that important as this question is, the amount of land in proportion to our needs is still large, and it is a problem of to-moripw rather than of jo-day. However, it is sufficiently a question of * to-day to warrant indignation at the way in which our public . j domains have been squandered and empires of valuable lands have been conferred on private corporations. The I more vigorous efforts inadequate as they are to guard the interests of the public against land plunderers are en- couraging. It is to be hoped that a further step will be DIFFERENT KINDS OF MONOPOLIES. 113 taken and that the Pre-emption, Timber Culture and Desert- / **u land Acts will be repealed. The Homestead Act should be / the onJ^._jiejtllejBLenJLjw of tne country, and even that I should like to see amended, although I will not take time to describe the desired amendment here. Unfortunate as have been some of the phases of the agitation of Henjv George, I cannot but think that the world owes him a debt of gratitude for placing in a clear light before the masses the fact that land is a natural monopoly. The ugly feature of his agitation is his proposed confiscation of the rent of land ; but the view which Cardinal Gibbons if current reports may be trusted takejr'bf his contemplated measure seems to me most sensible./ I do not believe it will ever appear to the Amencan people a just thing to take the property of land-owners without compensation. I do not believe that the moral sense of the American people will ever tolerate any serious steps looking to the confiscation of this species of property. To me whatever false accusation may have been brought against me to the contrary notwithstanding it has ever appeared a cruel and uniust thing to do, and thus I have always taught. However, it seems to me as to Cardinal Gibbons evidently a waste of breath to refute the errors of Henry George. They are not a living issue. It is, however, worth our while diligently to read a book like " Progress and Poverty," and to gather from it the use- ful lessons which it undoubtedly teaches. With this I leave the land question for the present and pass over to other natural monopolies. CHAPTER XVIII. NATURAL MONOPOLIES AND COMPETITION. 'VIDENCE of the increasing indignation with which i J / monopolies are viewecT by the~~public accumulates r\ daily. Mr. Rayner, who represents a Maryland constituency, \jf. has brought a bill into Congress for the suppression of trusts and other corporate combinations, while an investigation into this subject has actually been ordered. A similar bill has ieen brought forward in the legislature of New York, and in proceedings against the Chicago Gas Trust have been instituted. Can any question be more thoroughly alive than this? And is it not worth while to carefully jKbnsider the subject of monopolies in all its ramifications, in A ^ order that we may know how to deal with it practically? The truth is that we have come to a critical period in our economic development, and a great opportunity is offered r various legislative bodies to do something of permanent benefit for the people. When a learned judge, well-known in Baltimore, heard some time ago that I intended to write \ra series of articles on corporations, he sent me this message : ^" Lay on and spare not." The time has come when legisla- tors and congressmen may "lay on and spare not," and feel sure that the people will support them. I dislike to mention the name of Cardinal Gibbons again, because I wish to keep this series of/articles as free from personalities as possible, but I cannoy refrain from mention of his able paper on the Knights of/Labor, which, it seems to me, is a .> V^ NATURAL MONOPOLIES AND COMPETITION. 115 document of historical importance, and that on this account : He said in that letter that the time had come in the world's history when the church should seek an alliance with the masses, and should abandon special efforts to conciliate the mighty in war, the powerful in trade, the great ones of this er.rth, because in the future the control of the destinies of the world rested with the people. It seems to me that there never was so auspicious a time for a great popular leader as now. Such an one cutting loose from the influence of corporate combinations and all special interests, could become a veritable Moses for the American people and win immortal fame. But who hag, on the one hand, the moral character, coupled with the qualities of leadership, and, on the other, the strength of intellect requisite for a correct ap- prehension of our social, industrial, and political situation? It is too much to be feared that this opportunity will be allowed to slip by, and through failure to discriminate be- tween various classes of monopolies and to treat each by itself, absolutely nothing of permanent utility will be accom- plished. The grangers in our Western states gained complete control of several legislatures and endeavored to restrain corporations from domination in the future. But what did they accomplish ? Something undoubtedly. Yet it may be questioned whether corporate domination was ever so marked in our West as it is to-day, and every one knows that a considerable portion of what was done has since been un- done. It strikes me that the farmers have been worsted in the conflict. Now, what is the reason that they have been driven from their vantage-ground and routed ? Simply be- cause they did not understand the nature of the subjects with which they were dealing. When we hear speeches on monopolies now, and read articles on combinations, one thought is found to be clearly 4 PROBLEMS OF TO-DAY. light forward, and only one. It is this : Competition is our salvation ; competition is the life of trade ; combina- tions prevent competition, consequently they are injurious and should be abolished. Stated in this general form, the \r -proposition is not true. Competition is not always a good thing ; competition does not always lower prices ; on the , contrary, it frequently raises prices ; competition is not always a possibility; competition has produced marvellous results in those pursuits which are adapted to competition, and the unwarranted conclusion is drawn from this fact that competitioneyerywhere and at all times is a good thing. The practical danger which confronts us is this : that in attempting to force the application of the principles of competition to those. pursuits \hich are not adapted to com- petition we will miss our present opportunity and do more harm than good. There are certain businesses which are in their very nature by reason, I mean, of their own inherent qualities mo- ^ wropolies. These we call natural monopolies, and any en- r to regulate natural and artificial monopolies by the same law is predestined to failure in the future, as it always has failed in the past. Had, indeed, the problem of natural monopolies been solved in the past, there would be few artificial monopolies, and these could be managed without difficulty. Natural monopolies are the basis of all monopo- lies of modern times. Tne lactthat certain businesses are natural monopolies has been so amply shown both by actual experience and by an elaboration of economic principles that I can scarcely regard it as anything else than an evidence of ignorance for any one to deny it ; yet our habits of thought are so gov- erned by principles of competition that it is difficult to make this clear to those not accustomed to economic dis- N A 7^ URAL MONOPOLIES AND COMPETITION. 117 cussions. I beg my readers, therefore, to be patient while I attempt to explain very carefully, and at as much length as this series of papers will warrant, the doctrine of natural monopolies. It will be most convenient to begin by an enumeration of those businesses which are natural monopolies. They are gas supply, street-car service, highways and streets, electric lighting, all railways, canals, bridges, lighthouses, ferries, v^** rw docks, harbors, natural navigations, postal service, telegraphs and telephones. This, doubtless, does not include all nat- ural monopolies, but with the exception of land, which will not be discussed, it embraces all the more important natural monopolies existing at the present time. It is claimed that / the regulation of these natural monopolies must be different from the regulation of commerce, agriculture, and manu- factures, because the underlying principles of these pursuits \aie peculiar. Now, it must not be supposed that competi- tion is never felt by those who are interested in natural mo- nopolies. On the contrary, they at times feel the keenest kind of competition. A pursuit is a natural monopoly when it is excluded from the steady, constant pressure of competition. When natural monopolies are engaged in in- dustrial contests, these contests can after all scarcely be called competition, and popular instinct feels this, for it ^ finds involuntary expression in language. We speak of struggles between natural monopolies as war. " A war has broken out between the gas companies," or between the trunk line railways, people say, and it is war in its character- istics. It is destructive, and has, like war, a termination of hostilities in view. Competition, on the other hand, never terminates. It is not a fierce and destructive onslaught, but a steady pressure which tends to stimulate enterprise and to bring about fair dealing. Compare a firm like Ham- 118 PROBLEMS OF TO-DAY. ilton Easter & Co. with the Consolidated Gas Company. The one is subject to assaults from time to time which always terminate, and must as surely terminate as to-mor- row's sun must rise, while it can scarcely enter into the range of human probabilities that the other can ever termi- nate. It is hoped that the difference is clear. If it is clear, the reader will at once perceive the fallacies of those who claim that government should no more send telegrams than grind wheat into flour or convert the flour into bread. This is a favorite argument with monopolists, and is thus stated in a recent editorial in a journal published in a neighboring city : " There is no more reason why the government should operate the telegraph than run the flour mills less, in fact, for everybody uses flour, while it is doubtful if even three per cent, of the people use the telegraph." It would be hard to pack more errors into one short sentence. The qne pursuit is a natural monopoly, the other^not, and what holds with one is not applicable to the other. Secondly, charges for the use of a natural monopoly are part of the expenses of business, and, like indirect taxes, are shifted to the consumer and felt by everybody. While certain pursuits_are liable to be injured by war, they are^ not and cannot be subject to the steady pressurepf competition. These pursuits are natural monopolies. We will be helped to understand why they are natural monopo- lies if some of their peculiarities are described, and I will quote from a recent careful writer, and then pass on to a further consideration of certain puzzling phenomena con- nected with natural monopolies : " i. What they supply is necessary. " 2. They occupy peculiarly favored spots or lines of land. " 3. The article or convenience they supply is used at the NATURAL MONOPOLIES AND COMPETITION. 119 place where, and in connection with, the plant or machinery by which it is supplied. " 4. This article or convenience can in general be largely, if not indefinitely, increased without proportionate increase in plant and capital. " 5 . Certainty and harmonious arrangement, which can only be obtained by unity, are paramount considerations." CHAPTER XIX. NATURAL MONOPOLIES FURTHER ELUCIDATED. THE qualities of natural monopolies enumerated in the previous article are sufficient to jhow one versed in the principles of industrial society wh)T jiibse pursuits to which these qualities pertain must be monopolies. They can hardly be regarded as entirely satisfactory to one to whom economic discussions are not familiar. It is said that I Agassizjxmld draw a picture of an animal if he but saw a ^, ./single bone which had once been part of its frame, because ,.jJ* * natural laws which he had grasped showed him that the eculiarities of the bone which he saw necessarily deter- mined the structure of the animal which he did not see. It is not enough, however, for us not versed in natural science to see a bone ; we want a complete drawing of the animal. It is similar with regard to economic institutions, only that there is this important difference : political economy is not so far advanced as natural science, and the political econo- mist has not so marked an advantage in his specialty over the ordinary man. The reason why some pursuits are monopolies may be stated in a somewhat different way. Why.. dp .men enter business? To make_money. This is the dominant motive, and this keeps the world going. I do not mean that men are not animated by other motives, nor would I have it thought that even all commercial transactions can be ex- plained by the pursuit of gain. I simply state that this NA TURAL MONOPOLIES. 121 motive is sufficient for our present purposes, and that ordi- narily, if a man in business is permanently not tempora- rily, but steadily, year after year losing money, it is a sign that his activity is wasteful, involving a loss to the commu- nity as well as to himself. Having fixed the fact in mind that the dominant motive in business is gain, it follows natu- rally that those business methods which yield most gain are bound to prevail and to drive from the field of competition less profitable business methods. We have in these two sim- ' pie facts an explanation of natural monopolies. Businesses of the kind mentioned can be most advantageously pursued under the form of monopoly. The services or things which they supply can be thus produced not merely for a smaller ex- penditure of labor or capital, but for a far smaller expendi- ture. There is, consequently, always an increase in gain for those men interested in natural monopolies who can bring <~ about a combination; and this increase in gain is a con-,. stant, never-ceasing attraction, tending to bring rivals to- gether. It is a steady force, like the attraction of gravita- tion, and it will act in spite of all legislative enactment. It transcends in power any state legislature and even the fed- eral Congress. But I go further than this. From the stand- point of political economy, which desires a cheap and abun- dant production of goods and services, the monopolistic method of production for those pursuits which are natural monopolies is not merely something inevitable ilis__some- thing desirable ; for attempts at competition waste the na- tional resources and tend to bring about commercial crises and stagnation in business. We want monopoly in gas sup- ply, water supply, and the like ; the only question is, what kind of a monopoly? Perhaps the tendency to monopoly will be made clearer by an illustration. Let us suppose two gas companies are 122 PROBLEMS OF TO-DAY. competing, and each has a capital of $1,000,000. The total capital engaged in the gas business is $2,000,000. If the two consolidate, the amount of capital already invested will not be materially lessened, but expenses will be reduced. Instead of two central offices there will be but_one, and the duplication of mains will be avoided for the future. Fewer collectors will be needed, fewer men to distribute bills, fewer men to put in meters, and the increased output of gas will not be attended with a proportionate increase of cost. If it costs a certain sum to manufacture ten million cubic feet of gas, it will not cost twice as much to manufacture twenty millions. This article can " be largely, if not indefinitely, increased, without proportionate increase in plant and capi- tal." There is, then, always a very considerable advantage in combination. It may be asked, then, Why are there so many attempts at competition? The _answer is very simple. The number of enterprises in gas supply which attempt legitimate com- petition is extremely small, and can only be made by those who do not understand the business. Most apparent at- tempts at competition are simply raids on a company which has a good business ; and the end in view is a division of the business and a participation in the spoils. A test is easy. When a new gas rnmpanv is formed in the interest of the " dear people." in order to give them, as it is usually said, the benefits of competition, let the confident citizen take the managers at their word and ask them to make a contract to supply gas at the current low rate for a number of years, and he will find that they will refuse. Rates go down and a bitter struggle ensues ; but it is not competition. It is a fight for mastery. The only question at issue is, Under what terms shall we combine or in what manner shall territory be divided? This has no special reference to Bal- NATURAL MONOPOLIES. 123 timore, for our case is but one of thousands, although I believe it rarely takes so long to come to an agreement. Nevertheless here, as elsewhere, it is only a matter of time ; and should in the future a thousand new companies be estab- lished, the result would be combination, for natural laws bring it about, and no one can help it. 1 While we have the testimony of reason, we are not restricted to that, for we have the testimony of experience. It is probably within bounds to say that over three thousand, very likely ten thou- sand, attempts at competition in gas supply have been made in this and other countries ; and the civilized world has yet } to show the first instance of permanent, successful competition in gas supply. And this natural monopoly is not different from others, but is selected for special consideration because it is more easily understood on account of the restricted /Xv\M scope of action of a single gas company. It must not be supposed that the amount of capital required for an under- taking is an essential factor in determining whether it shall be a natural monopoly or not, for this is variable, and it ~|ju4y^ often happens that a business always subject to competition has a larger capital than one which has the field all to itself. A bank may, often does, have a larger capital than a gas company ; so may a dry-goods establishment. Professor ' Henry JD Vj A.dams, in his monograph on the " Relation of the State to Industrial Action," divides business into three classes, namely: (i) those of diminishing returns; (2) '-"- those of constant returns ; (3) those of increasing returns. . An undertaking is a business of diminishing returns when after a certain point, soon reached, an additional investment of labor and capital is not attended with proportional re- turns. Agriculture is the best illustration. After a farmer 1 Since I wrote the above a formal consolidation of the three Bald more gas companies has taken place. 124 PROBLEMS OF TO-DAY. puts a certain amount of labor and capital on a field of corn, he says it does not pay to invest more. If corn ought to be hoed three times, it may be of some use to hoe it four times, but the additional return will not be large enough to make it pay. The fourth hoeing yields far less than the third, the fifth far less than the fourth, and so on. Similarly, after a farm of suitable size has been brought under cultivation by one farmer, he will find that to extend operations, buy more land, and put more labor and capital into agriculture will not pay. Consequently, for one man to attempt to get a mo- nopoly in farming is an absurdity. It cannot be done. After a certain point has been reached, returns fall off, and a man operating on a smaller scale has an advantage. Com- *i, merce and manufactures are businesses of constant returns. After a business has attained a normal size, additional in- vestments will be accompanied at best with constant returns, and the manager will have no advantage over others by rea- son of an excessive amount of capital. It is surprising how far a gifted business man in our days can profitably extend his business ; but every one reaches his limit, and, except in case of artificial barriers, like protective tariffs, merchants and manufacturers, like farmers, always feel the pressure of competition. Enterprises which fall under the third class are quite different. The larger the business, the greater the relative profit ; and so there is always an inducement for an enlargement of the field of operations. But this is not all. When it is stated that a business be- comes relatively more profitable in proportion as the amount of capital invested increases, it is already granted that large ' concerns have the power to crush small ones ; for if business is more profitable, it is because production is cheaper, and if the big man produces cheaper he will crush the little man. The principles of competition are, then, totally inapplicable NATURAL MONOPOLIES. 125 to natural monopolies. Competition is impossible, and at- tempted competition wastes capital and ultimately raises prices. The temporarily low prices during industrial wars are illusory. Let us come back to the convenient illustra- tion of gas__sup_ply. A ^practical man demonstrated before \ an association of gas manufacturers recently that gas could be made and sold for a handsome profit at fifty cents a thousand. This demonstration was printed in a jo'urnal de- voted to the gasjnterest, and I am not awarg_ that among themselves gas men have denied it. Yet there are_Jew American cities where it can profitably be made to-day by existing companies for less than twice that, and even one dqllajLa-thousand is considered cheap gas. Why? Simply because destructive gas wars have wasted property, increased the fixed charges which gas companies must meet, and rolled up their capitalization out of all reason. No honest man who knows anything about the business will deny this. General John Newton said recently that gas in New York City could profitablv_be supplied for seventy-five cents a thou- sand, and the high price he attributed to the wastes of com- petition, as seen in the duplication of mains by rival gas companies. Further proof of this statement is seen in the fact that cities which supply their own gas and exclude com- petition can do so fur loss than a dollar. Hon. Joseph Chamberlain when in Baltimore told one of my colleagues that the city of Birmingham. England, purchased the gas- works at his instigation whe_n he was mayor, and that the re- sults were most fortunate. Another colleague of mine, who ' has lived in Manchester, tells me that he never paid ovei sixty-four cents a thousand, and yet this price yields a hand- sonic profit and has enabled the city to carry forward im- provements without burden to the tax-payers. Some towns in Scotland supply gas for less than fifty cents, and I have 126 PROBLEMS OF TO-DAY. even heard of a twenty-five-cent rate, though for that I will not vouch. The following is an official statement of the gas-works in r o Wheeling, West Virginia: City bought the works in 1871 for~Jioo,ooo. They were free from debt in 1880. Present value $500,000. Returns in 1887 were $39,000, from which $6000 must be deducted for payment of city debt, and $21,000 for "repairs, etc.," leaving $12,000 net. Rates, $1.50, later $1.20, and now 90 cents. 1 The number of in- habitants is 35,000. We ought to have gas for fifty cents in Baltimore. Now, cheap gas is a great help to manufacturers, and especially to those doing business on a small scale. Thus a correct pol- icy in regard to this natural monopoly helps to keep compe- tition alive by preventing all unnatural and artificial monop- olies. 1 Since reduced to seventy-five cents. CHAPTER XX. THE PROPER METHOD OF DEALING WITH GAS SUPPLY AND STREET RAILROADS. SINCE I wrote the last chapter, a gentleman who has lived in Belfast, Ireland, for some time has had the kindness to send me a letter about the experience of the people of that city with the gas supply, and as it is merely typical, I will quote some extracts from the letter : " I have had some experience of the gas supply for the town of Bel- fast. About fifteen years ago the town council obtained powers to purchase the gas-works, etc., of the company then supplying the town. The purchase-money was borrowed from the government. At the time the council took over the works the gas company were charging something like five shillings ($r,2o) per 1000 feet. Under the management of the gas committee, the interest on the purchase-money and the requirements of the sinking fund for the garment of the debt have not only been met, but the committee have been able to make gradual_reductions in the price to cus- tomers. The price, I believe, is now two shillings and nine pence (66^cents) per 1000 feet, and the profits would ius- tify a greater reduction, but I understand the committee is strengthening its position and continually improving plant j and machinery. When it is considered that Belfast has to import all its coal from England and Scotland, it can readily be seen that gas should be supplied at a very small figure in towns conveniently situated to coal mines. Two years ago . ^v^ 128 PROBLEMS OF TO-DAY. the Belfast gas committee held an exhibition of gas stoves and gas-heating appliances, etc., and the exhibition has in- duced many to use the gas for motive power and cooking, etc. . . . Under the English 'Towns Improvement Act,' town_pmmissioners can obtain compulsory po\vers to pur- chase gas companies, etc., if considered for the benefit of the public. It would be a great blessing if such powers were conferred upon town authorities in this country." The American consul at Leeds tells me that the people of that city are well supplied withNgas at forty-four cents a thousand. There are several jhings which may_be done in view of the fact that the gas supply is a natural monopoly, and one thing which clearly should not be done. It should never be attempted to introduce or combel competition between rival companies, for the result is onty evil. Not one parti- . J^^Q of good can accrue to the public by attempted compe- tition. Streets are torn up and pavements are never prop- erly relaid. This injures the health of citizens, for nothing is better calculated to promote mj^aria, as many of us in Baltimore know to our sorrow, and it wastes our property. If it is urged that money is jpent, I reply that such a plea for competition proceeds either from ignorance or dema- gogism. What is spent is wasted, and if not so spent, it would have been employed in some other enterprise, very likely a legitimate enterprise which would have really bene- fited the people. One of the things which may be done is to recognize the fact that an existing company has a monopoly, and tojnake it a legal monopoly in returnforconcessions. This was done in a Southern city recently. It was proposed to allow a rival company the privilege of laying pipes in the streets, and supplying the citizens with gas, and the members of the GAS SUPPLY AND STREET RAILROADS. 129 municipal council were at first carried away with the idea of competition, and to what extremes men go in the direction of a popular illusion is shown by the statement of one member, that competition in itself was a good thing, even if it accomplished nothing. A gifted young lawyer, however, who had read James on Gas Supply, went before the council, and, with every member against him at the start, was able to convince them of the folly of rival companies. The result was that the existing company agreed to limit its price at once, and in a certain contingency to lower it in the future. The proper method for the city authorities to follow in the~ case of gas supply, provided it does not furnish gas itself, is very simple. The franchise should be sold at .public auction, widely advertised, for fifteen vears^when it should expire, the city reserving the right of purchase of the works at the expi- ration of the period for an \appraised valuation. It should be made clear that plant and other property of the corpo- ration should be purchased only at their value at the time, " having regard to their condition and their suitability to the purpose of the undertaking, but without any addition for compulsory purchase, good- will, or future profits." This method, or, in fact, any method of private ownership, ' . leads to entanglement of public and private interests, which is demoralizing, for nothing promotes corruption like com- plexity in administration, while nothing is more wholesome than simplicity in administration. It is desirable to separate by as sharp a line as possible public and private undertak- ings, and this end can best be accomplished by ownership of gas-works by municipalities. It is on this account that I recommend in my report as tax commissioner that the / Maryland legislature refuse hereafter to grant any charter , ~t^- to any private "corporation to supply gas or water within the borders of our state. A constitutional amendment prevent- 130 PROBLEMS OF TO-DAY. ing the legislature from granting any such charter would b desirable. Nothing__could be more calculated to prevent corruption and purify government, for nothing has so cor- rupted and debased our political life as private corporations in control of natural monopolies. We have got so used to municipal corruption that it seems to us as something inevi- table, but such is not the case. I have lived for years in cities in which the breath of suspicion never touched the municipal government, where corruption and methods of avoiding it were not at all the questions of the day ; and when the Hon. Joseph Chamberlain addressed the students of Johns Hopkins University, he claimed for municipal ad- ministration in England that it was above reproach. It is idle for us to say " we must wait until we become morally better." I believe we are as moral a people to-day as the English or the Germans! Dur terrible corruption in cities dates from the rise of private corporations in control of nat- ural monopolies, and when we abolish them we do away with the chief cause of corruption. " But we must take natural monopolies out of politics." It never has been done, and it is an impossible thing to do absolutely impossible. No gas-works, no water-works, no street-car lines, no steam railways, are so thoroughly in politics as those in the United States. Who is so innocent as to think our great railway corporations " out of politics"? Any one so simple would have done well to spend a few weeks - in the past winter in Washington or Annapolis and keep his eyes and ears open. When I was in Berlin some years ago I made a report on Prussian railroads, under the direction of the American minister, Hon. Andrew D. White, for the Department of State at Washington. Every facility was af- forded me for my investigation, and my inquiry into the political effect of state ownership, which obtains in Ger- GAS SUPPLY AND STREET RAILROADS. 131 many, was most careful. Since that time I have followed the development of the Prussian policy with some care, and it cannot be charged that I have been influenced by the government view, for my favorite Germannewspaper the only one which I take is bitterly hostile to the existing government. I make bold to say that to-day our American / railroads are incomparably more "in politics " than the German railroads. Not only this ; those German railroads which have been bought by the state, I beh'eve, are less " in politics " than they were when they were private property. Why this must be so will be considered hereafter. But the reader must not jump at the conclusion that I am going to advocate complete public_ownership and management of all natural monopolies at the presentJime in the United States. I am going to do nothing of the kind. However, I unhesi- tatingly advocate such ownership and management for gas- works, and I challenge any one to instance a single American city or, for that matter, any city, wheresoever situated which has gone over to public ownership and which regrets it ; which, indeed, has not found that a corrupt political in- fluence was thereby removed and political life purified. The most unfortunate city in the world with its public gas-works has been Philadelphia ; but when it was proposed to sell the gas-works, and when a ring had " fixed " the council, as well as many of the newspapers, there was such an outbreak of popular indignation, with hints of the penitentiary, that the council was terrified into doing its duty. StigL-iailroads are one of the most important natural monopolies, and a tendency for public ownership and man- agement is beginning to become manifest. In the United States, however, there is but one public street railroad, and that is the one which is operated in connection with the Brooklyn bridge. Although it is said to be the best managed street railroad in the country, I am not prepared to advocate 132 PROBLEMS OF TO-DAY. public ownership in Baltimore at present. What we want is the New Orleans system, and that is what I have recom- mended in my report on taxation. It is sale of franchise, with reserved right to purchase all the property, that is, land, buildings, horses, cars in short, all the plant at an ap- praised valuation at the expiration of a short period, say fifteen years. In this, as in every case of natural monopoly, it should be made perfectly clear that no compensation ought to be granted for compulsory purchase, good-will, or expectation of future profits. This yields a large revenue to the city and leaves the people free at the expiration of each period to adopt any system of street railroad service which they see fit. It works very well in New Orleans, where in .1886 nearly one-eighthjof_all municipal expenditures was defrayed by the sale of a single franchise for twenty-five years the maximum period for which one should ever be granted. When the first franchise was granted in Baltimore, in 1859, the mayor of the city appears to have been a man of rare integrity, for through him the right to acquire the most important street railroads at the expiration of each period of fifteen years, was reserved to the city, and in 1889 the city again comes into possession of a most valuable privi- lege. A franchise which now yields nine per cent, of gross revenues could be sold probably for twenty-five per cent. In New York City a franchise has been sold for forty per cent, of gross revenues, and in Buffalo, New York, half the size of Baltimore, thirty per cent, was offered for one. What I should like to see, however, is the introduction of anothej:._system, which is hinted at in one of our acts of in- corporation; namely, reduction of fares. There is not a shadow of a doubt that passengers could be carried in Balti- more for three cents more than is charged in Berlin, rhere the companies must keep the streets paved from GAS SUPPLY AND STREET RAILROADS. . 133 curb to curb, must provide each passenger with a seat, must, in laying tracks, have some respect for the rights of owners of vehicles, and do a thousand and one things which an American corporation does not dream of, to say nothing about that fact that in 19 1 1 their entire property reverts to/^ the city without compensation. Thereportof the tax com- ^^ mission ^and in this respect there was unanimity of opin- ion, for the other members agreed to my report speaks of rendering proper methods of dealing with natural mo- nopolies compulsory upon legislatures and municipalities. The people must do this, for their representatives in our days of "government by special interests" love corporations better than they do the people. 1 It was for a long time sup- posed that the people had no rights which anybody was bound to respect, and you could even find professing Christians men who claim that they love their neighbors as themselves bartering away for a mess of pottage the rights of the public, women and children, and even unborn generations. Were Christ on earth, I expect He would call them liars and hypocrites. However, imprisonment of New York City aldermen in Sing Sing, and the conviction of Jacob Sharp, even if it proved a fiasco in the end, has helped to clarify somewhat the ideas of men with regard to the rights of the public. WHAT is NOW NEEDED is IN EVERY CITY A PUBLIC PROPERTY DEFENCE LEAGUE TO WATCH THE INTERESTS OF THE PUBLIC, AND TO HUNT DOWN AND SEND TO THE PENITENTIARY THOSE WHO FORGET THAT PUBLIC OFFICE IS A PUBLIC TRUST. 1 A gentleman who suggested to certain office-holders in the Balti- more City Hall that the city should acquire the franchises which expire in 1889, was told that " We do not want to speculate off our own citi- zens." That is what they call protectingpublic _progerty and public rights : " speculating off our own citizens." It is not difficult to imag- ine the causes of such strangely perverted moral views. CHAPTER XXI. WATER SUPPLY AND ELECTRIC LIGHTS. THE next natural monopoly to be considered is water supply, and comparatively little need be said about this, for the principles which control it are precisely like those governing the gas supply, save that the reasons for public undertakings are still stronger. It is more easily managed, and the 1 ' r "pnrtnnrr nf g^"^ rg1 " g(a of water in large quantities cannot be overestimated. One of our special blessings in Baltimore is our abundant supply, and it is questionable whether any_sp_ecial charge should be made lor its use. Certain it is that the advantage of our public service over any private service must be measured by millions of dollars. It is true that on account of our water supply the number of municipal employe's is larger than it would other- wise be, but he would be a bold man who would clairp that our water supply has corrupted our politics a hundredth part as much as natural monopolies owned by private cor- porations. I have made special investigation of watei supply in several towns, and I have yet to find one instance in which municipal self-help did not work better than the be- neficent paternalism of private corporations. I have looked into the experience of a whole group of towns in New York state, and they all tell one story. I have before me as I write complete and trustworthy returns of two or three of these, procured with some labor by the exertions of friends. The experience of Randolph, in Cattaraugus County, WATER SUPPLY AND ELECTRIC LIGHTS. 135 New York, tells the story for all. A private ^company wanted to put in water-works, and the lowest bid which they could be induced to make was $28,000, and that was under condition that the town should subscribe for stock. The charge for water was to be $10 for a household, with addi- tional charges for extra faucets, closets, etc., in proportion Randolph finally built its own works for a total cost of $20,299.86, and with a charge of $4 for each household, instead of $10, is making a profit. Everybody is delighted with the experiment. 1 Gowanda, in the same county, has 1 The following statement was sent me by a gentlemen living in Randolph : MEMORANDUM OF THE CONSTRUCTION AND OPERATION OF RANDOLPH (CATTARAUGUS COUNTY, NEW YORK), WATER-WORKS. Dec. 19, 1885. Cost of construction to date . $19,997 75 June 9, 1886. Building spring-houses and fen- cing reservoirs 29 86 Sept. 30, 1886. Cost of two extensions . . . 272 25 Total cost $20,299 86 Jan. I, 1888. 131 consumers paying a rental per annum of $99' The prices charged by water companies to villages in this section is $45 to $50 per hy- drant. We have 1 7 hydrants at $45 765 oo $1,756 oo Our bonded debt is $20,000, on which the inter- est is four per cent, per annum 800 OO The water-works are built on the gravity system. Have nearly five miles of pipe laid, and the total expenses of operating thirst year were 75 Expenses of operating for 1887 240 The village has a population of about 1 200, and J36 PROBLEMS OF TO-DAY. had a similar experience, as have Fredonia and Dunkirk, in Chautauqua County, while the neighboring city of Jamestown tried the private_corp[qration plan to its sorrow. The gen- .ieman who sent me the account of the Randolph experi- ment writes me : " As to Jamestown, I have heard nothing but complaints." As I write, a gentleman who has entered my office tells me about the still more unfortunate experience of the people of Galesburg, Illinois, with private water-works. They have been so annoyed by failure of the company to fulfil its promises, and by perpetual litigation, that they would now gladly purchase the works, which have been idle for t\vo years. Jamestown would gladly do the same, and it actually secured the passage of a bill through the legislature for the construction of gas-works, but it was vetoed on some constitutional pretext. Bradford, in Penn- sylvania, not far from these towns in New York, the expe- rience of which I have examined, tried private, water- works, and, dissatisfied, finally bought out the private company, and is perfectly satisfied with the experiment of public water-works. The rates charged per year for one house- hold by the company were $20 a year, by the city $8 a year. The works were owned by the company, for four years, and complaints were made of inadequate supply, of impurity of water, and high rates. An enthusiastic citizen of Bradford writes that since the purchase of works by the city, they there will be a good many more consumers. Previous to constructing these water-works for the village a company was partly organ- ized here to build on another plan, and they made a schedule of rates for household use at per annum 10 oo With extra faucets, closets, etc., in proportion, I enclose a schedule of water-rates from which please see we make ours per annum ... 4 oo WATER SUPPLY AND ELECTRIC LIGHTS, 137 " have the best water of any city in the United States, and our fire companies^ and our fire protection cannot be beaten by any city of our size." It is interesting to notice that in Fredonia, New York, all the traditional arguments against public undertakings were brought forward. It was said that private enterprise was superior, that the public always made a fiasco with its undertakings, and the like, and opponents of the measure specially called attention to the Albajiy capitol, which has proved such an expensive un- dertaking for the state. This Albany capitol argument is always made to do duty on such occasipns. Good sense, nevertheless, triumphed. The water-works were constructed within the original estimates, and they are successful in every respect. It would take a powerful microscope to discern that these works have introduced any corruption into village life. The plan of private companies is to get the towns to subscribe for a sufficient number of hydrants at a sufficient sum for each to pay nearly the entire interest on the total outlay, and all the other revenues are then clear profit. A gentleman who is attorney for one of the large companies engaged in supplying towns with water-works told me that his skill had been taxed in assisting them to pump water enough into their stock. It had been watered again and again, and it was still necessary to add to it__to conceal the enormous profits. When we take up electric lights, we shall find no reason to abandon the principle of local self-government and munici- pal self-help. No organization is doing so much to throw light on these questions as the American Economic Associa- tion, and no organization is more deserving of the hearty support of every patriotic American. One of its most use- ful publications is a monograph on municipal public works, from which I give a few facts. The part on electric light- 138 PROBLEMS OF TO-DAY. ing is contributed by Charles Moore, Esq., editor of the Detroit Evening News and is most interesting. Bay City, Michigan, put in a plant in October, 1886, and supplied lights jbrJJ4 2 each per year, whereas it had been paying a private company $100 per year. " Lewiston, Maine, owns its plant," says Mr. Moore, "and by the use of water power has reduced the cost to 14 cents per lamp per night, or $51.10 per year. The plant for 100 arc lights cost $14,500; the cost of construction was $450 per running mile. The price paid under contract was from 55 to 65 cents for lights burning only till midnight. Now, at a cost of 14 cents each, the lights burn all night." Madison, Indiana, also appears to have obtained good results from public works. It may be asked, Why are these facts not generally known ? One reason is" that so many of our great news- papers are completely under the control of corporations, for other cities are not so fortunate as we are in Baltimore, and every instance of a failure of public works is heralded abroad to the four corners of the earth, while examples of success are not discussed. Who talks about our Baltimore ity Hall, which was built for $200,000 less than the appro- riation, or the fine public building put up in Indianapolis, Indiana, for less than the appropriation? These examples are not isolated. Careful inquiry will reveal an astonishing number. When, however, extravagance and comparative failure characterize a public enterprise, like the capitol at Albany, we never hear the last of it as if private enter- prise were not frequently a failure ! The truth is, private enterprise generally, in its own sphere, agriculture, com- merce, manufactures, goes for ahead of public enterprise ; but in its own sphere public enterprise will in the long run go far ahead of private undertakings. WATER SUPPLY AXD ELECTRIC LIGHTS. 139 When we take up railroads we again turn from municipal problems to state and federal problems, and we enter upon a discussion which, while it is equally interesting, is more difficult of comprehension, for the operations of this natural monopoly are vast and far-reaching. Not only are the principles somewhat hard to understand, but the correct practice among us is not at once discernible, for it must be granted that federal ownership and management of railroads islTthing so far off that it does not enter into practical poli- tics to-day. I will, however, try in my following chapter, to make a few principles clear, and to lay down certain practical rules which should govern us in our dealings with railroads. CHAPTER XXII. WAR AND CONSOLIDATION THE RESULT OF RAILROAD COMPETITION. SOME years since I was passing a summer in a village in Western New York, Fredonia by name. The only__rail- road which the Fredonians could then use in going to Buf- falo, about forty miles distant, was the Lake Shore and Michigan Southern, and the rates, three cents a mile, were felt to be excessive for so old and thickly settled a country. There was as there still is a provision in the charter ot the old Lake Shore Road that fares should be reduced as soon as dividends reached a certain point, which, of course, they never have reached and never will reach. How the people like to be humbugged ! But at this time a parallel railroad, the " Nickel Plate," from Buffalo to Chicago, was in process of construction, and the Fredonians were enthu- siastic over the prospect of cheap tickets to Buffalo. I well remember the exclamation of a lady on the street-cars, " Now we are going to have cheap tickets to Buffalo ! " and I can see as if it had happened but yesterday the attorney for the "Nickel Plate," to whom she was speaking, as he beamed assent from his benevolent countenance. Any one who knew anything about the economic principles con- trolling railroads, who had grasped even a few elementary facts about natural monopolies, could have told the people that they were doomed to disappointment in their hope of permanent relief from the competition of a parallel road ; WAR AND CONSOLIDATION. 141 but the illusion had taken such a strong hold on them that remonstrance was worse than useless. I felt tempted to call in question their predictions, but it is not pleasant to be called a crank or " mere theorist," so I held my peace and awaited developments. The road_was_ built and has now become the property, to all intents and purposes, of the Lake Shore ! Fares were never reduced. Single tickets to Buffalo are just what they have been for years, and round- trip tickets have if my memory serves me correctly been raised five cents. What earthly good has been accom- plished by this parallel road? Doubtless speculators and construction companies put money in their pockets, but the people are poorer on account of the enormous waste of national resources. The fixed charges of the Lake Shore have been increased, its capital invested has been aug- mented, and a reduction, upon which the legislature could once have insisted, would probably now bankrupt the road. Another bubble burst about the same time and in the same state. I refer to the West Shore Road, which parallels the New York Central and Hudson River Railway. What was not that going to accomplish ! As a matter of fact a railroad war did break out, and passenger tickets fell to one-half the former rates for a short time. This was war, not competition, and the West Shore was beaten, badly beaten, and leased its lines for 499 years to the New York Central. Before this happened, however, passenger fares had been restored to their old rates, and a reduction, which would once have been practicable, is now out of the ques- tion. It is estimated that the money wasted by these two sin- gle attempts at competition amounts to two hundred mil- lions of dollars. Let the reader reflect for a moment on what this means. It will be admitted that, taking city and 142 PROBLEMS OF TO-DAY. country together, comfortable homes can be constructed foi an average of $1000 each. Two hundred thousand houses could be constructed for the sum wasted, and two hundred thousand houses means homes for. one million people ! I suppose it is a very moderate estimate to place the amount wasted in the construction of usefess railroads at a thousand millions, which, on the basis of our previous calculations, would construct homes for five millions of people. But this is probably altogether too small an estimate of even the direct waste resulting from the application of a faulty politi- cal economy to practical life. When the indirect losses are added, the result is something astounding, for the expense of a needless number of trains and of what would otherwise be an excessively large permanent force of employe's must be added. Of course, nothing much better than guesswork is possible, but I believe that the total loss would be suf- ficient to provide a greater portion of the people of the United States with homes. There is something almost pathetic in the amazement and disappointment of the general public when the Nickel Plate and West Shore were absorbed, and the same thing was seen in Baltimore last fall when the gas companies agreed to consolidate and when the Baltimore and Ohio telegraph lines were acquired by the Western Union. Attempts to prevent such consolidation had been made by legislation. A pur- chase of the West Shore would have been illegal, but a lease for 499 years was not ! The Baltimore and Ohio was re- quired to give bonds in Philadelphia, to be forfeited in case of failure to compete. All this was as childish as the anger of the public on account of these various consolidations. Competition is foreign to the nature of natural monopolies, ana ail me laws ot Congress and of state legislatures to force competition upon them will be as fruitless in the WAR AND CONSOLIDATION. 143 future as they have been in the past. As well legislate that the water of all rivers shall flow up instead of down ! The anger of the public on account of these consolidations has always reminded me of the opposition of artisans and me- chanics to the introduction of new machinery. Resistance is fruitless, and the only sensible course is to recognize the inevitable and make the most of it ; and much can be made of it by the exercise of a little common sense. Mr. Vander- bilt in acquiring the_West Shore was as truly effecting an improvement in the processes of production as the one who introduces improved machinery in manufactures, for he made it thereby possible to perform certain services for the public with a smaller expenditure of labor and capital than would otherwise be possible. There are certain phenomena connected with railroads in the United States which at first are likejy^to_puzzle one who has just begun to doubt the efficacy of competition in the field of natural monopolies. These are, for the most part,, intimately associated with thejact that our railroad develop- ment is still incomplete, and the consequences of various policies are, therefore, not so clearly discernible as in an older country. Probably England is the best country for an American to study _who desires to see the legitimate effects of competition, for England started out with our theory of private competition, and under its influence two natural monopolies the telegraph and the railroad were fully developed. I say developed, because little remains to be done in either direction. A few minor extensions may be made, and a few branch roads constructed, but the gen- eral features are complete. First, just one word about the telegraph policy of England. England tried to force com- petition, and this was the result. Her telegraph system cost her nearly as much as all the other telegraph systems of 144 PROBLEMS OF TO-DAY. Europe put together, for the estimated cost of the English telegraph is 272,000,000 of francs, and of all the other tele- graphs of Europe put together only 285,000,000 of francs. Probably the best work on English railroads is that by Pro- fessor Gustave Cohn, and in this it is shown that the ulti- mate effects of competition in every case have been higher charges. It is said that rates have fallen in the United States. This is true ; but has the cause been competition ? Competition has undoubtedly brought about a reduction in some cases sooner than it would otherwise have happened ; but as the country developed and became thickly populated, it was natural for rates to fall. The principles which control mo- nopoly charges are simple. A man who has a complete monopoly will fix prices at that point which will yield largest net returns, and up to a certain point he will steadily reduce charges, as he thereby increases business and gains a larger total net revenue. The most striking instance is given by the history of the post-office throughout the civilized world. A reduction of over fifty per cent, in charges has ultimately increased net revenues. Another illustration is given by the Standard Oil monopoly. Newspaper organs of monopoly tell us to admire the magnanimity of the Standard Oil peo- ple, who have reduced prices. This is a false statement. Prices have fallen in spite of their most strenuous efforts to keep them up, and this again illustrates the importance of political economy as a study for" common schools. It is possible to say such absurd things in regard to the price of oil simply on account of the dense popular ignorance about those forces which make prices what they are. The produc- tion of oil has increased enormously, and those among my readers who are acquainted with the Standard Oil men will probably have heard them lament this. Now if they_raised WAR AND CONSOLIDATION. 145 prices or maintained them, they would be obliged to keep their oil and waste it. They have always held back vast quantities of oil to maintain prices, and rumors reach us of a determined effort to diminish production ; but, never- theless, it has been necessary to lower prices time and time again to work off the quantity on haiid. Prices must be lowered in order to increase deman 1 for the commodity. Apply this to railroads. They have enormous fixed charges which are entirely independent of the business they do, and the greater their business the more active use they make of their capital. In proportion as a road is . not used to its utmost capacity, its capital is idle. Now, to ^ help build up the country and supply themselves with busi- ' ness, it has been necessary for our railroads to reduce charges, otherwise they could not get the business which they needed. A portion of their business would simply not exist were it not for lower charges than those of earlier days. This tendency to low^r prices stops in the case of private monopolies at precisely that\oint where increased business A\x/H is not attended with increased \tet profits. One point to be observed is tHiiT: Legislatures have a control over rates, and could, in many cases lower them materially, had not the wastes of competition raised expenses of^the railroads. Second, it must be remembered that the number of even nominally competitive points is, and ever must remain, small. According to the chief of the bureau of statistics, there were, January i, 1887, 33,694 railroad stations in the United States, and of these only 2778 were junction points, and many oi (y* these junction points, i.e. places having more than one road, were on railroads which had no terminus in com- mon. More important is the real competition of natural water routes, which sometimes exists, though there is a determined 146 PROBLEMS OF TO-DAY. effort to crush it out. Last summer, at Chautauqua, 1 witnessed a typical instance. The Chautauqua Lake Ruil- road bought every line of jstejirners on the lake. Artificial waterways, namely, canals, are also important where the people of a stale have riad the good sense to retain and improve them. This has happened in New York State, which now proposes to spend a million on the Erie Canal. .-, This Erie CanaHias helped to make New York thejxnveiful Empire state she is, and its maintenance was due to the statesman, Horatio Seymour. A few years ago New York was bound hand and foot A 'like Maryland by a senseless, iron- clad constitution, which threatened to hand her over to Hie clutches of the corpo- rations ; but Horatio Seymour aroused the people, got the state constitution amended, and, abolishing tolls, made the Erie Canal a free waterway. A further consideration ot railroads will lead us back to the subject of federal finan- ciering, after we have touched upon several other important topics. CHAPTER XXIII. PUBLIC ROADS AND CANALS. I SUPPOSE nothing is more thoroughly a problem of to-day with us in Maryland than the fate of the Ches- apeake and Ohio Canal. The subject has been much discussed, but the discussion has not been of a nature to inspire the patriot with enthusiasm for the future of his country. There has been such an absence of any clearly defined purpose, of any manifestation of enlightened views in regard to the various means of communication and trans- portation and their relations to one another, such an utter lack of large and generous statesmanship, that one is re- minded of the expression " peanut politics " rather than of the activity of those two political leaders, Horatio Seymour and the earlier and still greater De Witt Clinton, whose names stand out so prominently in the history of canals in the United States. There are a few points in regard to canals in general which should be carefully con- sidered before action is taken. ^^ It is commonly said that the day of canals is past. This ^ a ., b is only a little less rational than to say that the day of the ordinary highways is past, because we have the steam rail- road. Eachjmeans of communication has its own use, and the office of each is not to displace the others, but to sup- plement the others. It was a misfortune for us that we began to neglect our public roads when the era of rapid railroad construction began, and in this one respect at least 148 PROBLEMS OF TO-DAY. V ( s it would have been a blessing for the United States had the age of railroads been somewhat delayed. A distinguished American, who has recently passed some time in Baltimore, said that our public roads in the United States were the poorest yhich /existed in any civilized country, so far as he hacT observed, 'and he has travelled extensively. The loss which this entails upon the agricultural community and the community at large is enormous. It requires morgjiorse power to pull a given load a given distance, and the waste resulting from the wear and tear of wagons and vehicles every year must amount to many millions of dollars. It was estimated some years ago that improved pavements in Berlin would save owners of horses on an average for each horse ~ja& considerable over $25. There are over ten millions of horses in the United States ; and if to be quite within bounds we place the annual saving which would result from first- class roads throughout the country at $10 per horse, it would amount to over one hundred millions of dollars, which is interest on two billions. This is probably moderate, for in cities like Baltimore first-class streets in which only proper street-car rails were allowed would save easily $25 per horse ; and the farmers will bear me out, I am confident, when I say that in this part of the United States, at least, $15 per horse is a very low estimate for the annual saving which would result from excellent roads. The saving to vehicles ' and to harness must be added to the saving of horseflesh ; and when it is remembered that with good roads one horse would often suffice where two are now necessary, and al- ways two where three are now required, it will be admitted that $20 a horse is not an extravagant estimate for the country. However, contenting ourselves with the low esti- mate of one hundred millions per annum, which is equal to interest on two billions of dollars, it will be seen how serious PUBLIC ROADS AND CANALS. ' 149 our loss in neglecting adequate provision for highways. The great French reformer, Turgot, who did so much for the province of which he was governor, elevating it from the condition of one of the poorest to one of the wealthiest provinces in France, turned his attention first of all to the ordinary public roads, and demonstrated by just such calcu- lations the advantage of first-class highways. There can be no doubt that the excellent roads he constructed were one important cause, of the prosperity of Limoges. Now, as we have neglected public roads, so we are also overlooking_the_ importance of canals, and the result is in many ways more_serious, for we can go to work the moment we will and improve our roads, but the value of vast expen- ditures is forever lost by a false policy with respect to canals. England allowed her canals to fall into the hands of the railroad corporations, and it is now as live a question there to know how to get them " out of the clutches of the corporations " and restore them to their proper uses, as with us to know how to take certain great works " out of poli- tics,," all of which proves that there is no " royal road " to good administration, and least of all by reducing govern- ment jo insignificance. However, it seems generally to be agreed in England that the conclusion that the era of canals had gone was over-hasty, and England proposes now to spend millions on canals. 1 France finds its canals still use- 1 The following is a quotation from the English journal, Engineering^ of December 30, 1887. It is taken from an article on the "Thames and Severn Canal " : " As a nation we have sinned grievously in our neglect of canals, and we are reaping the punishment by finding ourselves under the heavy heel of the railway companies. Our friends on the Continent have been wiser than ourselves, and have never ceased to conserve their canals, continually increasing their extent and capacity, until now barges of comparatively large burden can penetrate hundreds of 150 PROBLEMS OF TO-DAY. V, ful, and they are able to carry large classes of freight for \ two-thirds what it costs by rail. Germany, although the various German states own the railroads, contemplates ex- tensive improvements in canals. Why? Because what we want in our national industrial life is to accomplish our ends with the smallest expenditure of labor and capital, and this purpose is attained by giving the canals a place in the vari- ous means of communication and transportation. American states offer us valuable testimony from experi- ence as well as these foreign countries. It is instructive even now to go back to the construction of the Erie Canal finished in 1825 and examine the circumstances under which the undertaking was brought to a successful termina- tion. Politicians are of two classes those who subserve special interests, and thus renew day by day their life of deception, 4 i * fraud, mid perjury, for in their oath of office they have called Almighty God to witness that they will not do that very thing and those whose acts substantiate their *^** professions of devotionto general and public interests. It is rather discouraging that under the influence of a high protective tariff and corporations managing natural monopo- lies, politicians of the former class have gained such an ascendency that all our various governments have become so depraved that the term " government by special inter- ests " is applicable to them. De Witt Clinton, however, was a man who was always asking himself, What can I do to miles into the country from the seaboard, and distribute imports at a price very little above that at the port of entry. " There nre signs, however, that public opinion is awakening in this country to the value of. canals; but if it is to be of any avail, it must lead to the inception of comprehensive schemes and must not end in a system of patch work." PUBLIC ROADS AND CANALS. 151 promote the general welfare? and he acquired a habit of looking at .measures from that large and patriotic standpoint. Thus it was that he pushed through hiscanal^pjqject against great opposition. And what was the nature pj th tion? Such as always attends public improvements. It was a " visionary " scheme, as a public undertaking it could not succeed, and the like, and it was called " Clinton's Big Ditch." However, it was finished, and if our politicians could be induced to give some attention to De Witt Clin- ton's life and writings, it would be most fortunate. This Erie Canal has probably done morejbr New York State and c City than any other one public enterprise, and to-day it is a powerful factor in determining freight rales all_Qvgr._the Union. It was in i882_that the canal was imperilled by an iron-clad state constitution, and then it was that Horatio /

tV to speak, that no federal assistance for the Erie Canal is de- sired, because that would involve federal interference. " The Union for the Improvement of Canals in New York " is strongly opposed to federal aid. Finally, nothing can be gained by a temporaryjand uncer- tain policy with reference to canals. It is proposed to give the Chesapeake and Ohio a trial for two years still ! Can anything more futile be imagined? It cannot be utilized until people know what to expect. Who will build new boats and engage in canal business while this uncertainty lasts ? The experience of Ohio is instructive. As soon as it was decided to retain the canals as the property of the r, state, business began to improve. The Ohio board of pub- lic works reported a gain of over $30,000 in the income from canals for 1886, and that was attributed to the hope that the canals were not to " be abandoned or allowed to fall into decay and disuse." The governor of Ohio says : " They constitute a valuable public property. The state should not dispose of any part of them." The " two-year trial " scheme is predestined to failure, and the canal might as well be sold at once. If that is not al- ready clear, it is to be hoped that the quotation from Horatio Seymour about the Erie Canal in 1882 will be suffi- cient. " This hostile and menacing attitude of our state toward canals and boatmen prevents the building of vessels and their use. It has lessened the receipts for tolls, for men will not engage in a business where they are liable to be ruined by an accident or by the designs of rich competi- 156 PROBLEMS OF TO-DAY. \ tors. These will find it profitable to carry for losing rates for one year if they can destroy forever the boatmen or the canals which keep down their own rates for carrying the 'J products of our own people. When they have destroyed their competition, they can ever after put up their own charges to suit their own interest." CHAPTER XXIV. THE FORCES PRODUCTIVE OF MUNICIPAL GREAT- NESS DISCUSSED WITH REFERENCE TO THE FUTURE OF BALTIMORE. r I "'HE articles which have appeared in The Sun on open- J. ings in Baltimore for business men have very natur- ally attracted a good deal of attention and awakened a spirit of hopefulness and enterprise. Who can set any limit to the possible future developments of our favored city ? Pres- ident Gilman, in his address before the Johns Hopkins Uni- versity on the 2 ad of last February, showed what had been done in a very short time to elevate Baltimore in all those things which go to make up a high civilization, and hinted at a possible future growth of the city in reminding the audience that London, with all its millions of people, was at the beginning__of the century buKa little larger than Balti- more at the present time. It has always been a favorite theory of mine that in Baltimore there are opportunities for the unfolding of a fuller and richer civilization than the New World has yet seen ; not only that, but that there are oppor- (tunities here which exist nowhere else. This opinion has not been carelessly formed, but is the result of careful reflec- tion upon the nature of the various elements which are working together to promote the advancement of Baltimore. Baltimore is situated on the border line between North and South, and here are brought together the peculiar excel- lences of each section, and here they will blend together "dl 158 PROBLEMS OF TO-DAY. indistinguishably in our municipal life. The charm of Southern social life, the high social culture which distin- guishes the South, will be supplemented by the indomitable push and energy of the hardy sons of New England. Music, painting, literature, and learning in all its various branches, are progressing favorably, while the economic basis of a high modern civilization is found in an expanding industrial life, as seen in our growing commerce and enlarging manufac- tures. One thing to_be borne in mind in reflections upon our future is that modern cities are to an unprecedented extent artificial products, the work of men's genius and energy. Formerly nature decided where a great city could grow up, and a high civilization was possible only on the seacoast or on the banks of great rivers. Now man has subjugated nature to such an extent that he is, comparatively speaking, independent of her whim and caprice. If natural water- ways, fail, he may construct artificial waterways, and even without the aid of navigation at all a city may spring up in the heart of a continent. Berlin, nearly the size of New York, is in the centre of a great open plain, on the continent of Europe, and may be regarded as a work of art. Only by canals can navigable rivers be reached, while the modern iron highway, the railroad, still more an artificial product, is a far more important element in developing Berlin, which has become an important railroad centre. It is the will of man which has made Berlin more important than the seaports Bremen and Hamburg. Perhaps a better illustration can be found in two small cities in Western New York, Dunkirk and J amestown. Dunkirk is a port on Lake Erie, and is advantageously situ- ated in a fruitful plain, extending along the shores of the lake. Jamestown, on the other hand, is on the top of the THE FUTURE OF BALTIMORE. 159 Chautauqua hills, and its only navigable body of water is Chautauqua Lake, scarcely more than a great pond. The next most important place onjthe lake is Mayyjlle, a village with perhaps ten or fifteen hundred inhabitants. Who would suppose that Jamestown wnnld leave Dunkirk, its rival, and once its superior, farcin the/rear in the race for supremacy in Chautauqua County? Yet such has been the case, and Jamestown will probably soon be twice the size of Dunkirk. Now, more or less acquainted with both cities, I am unable to find any other explanation for this than the greater energy and enterprise of the people of Jamestown. Jamestown is, in other words, an artificial j>roduct. Two of the chjef djs- ^, advantages of Jamestown which the people see for they C have trie_d__tp correct them, and have been defeated by con- stitutional quibbles are their dependence on private gas and water companies, for in these respects they allowed things to take their own course, and did not keep in their ..; own hands control of two of the essential elements of prog- ress. Dunkirk, on the other hand, is blessed with excellent public water- works which may well be the envy of James- town, and in the future this may give her an advantage over her rival. The application is sufficiently obvious. Nature has blessed us and done more for us than for some other great cities. These advantages are not to be despised, but they cannot be relied upon. It rests jwith us to say what the future shall be. If we, the people of Baltimore, will it, we can make Balti- more as big as London. Not only that ; we can make Baltimore a happier, better, and more truly civilized city than London to-day with all its squalor and misery. \Vhen the question is asked, How shall we outstrip ouJ rivals in true greatness? it will be at once seen that all the previous papers in this series have a bearing on the answer. 160 PROBLEMS OF TO-DAY. It is now proposed to stop and apply some of the principles which have already been developed. Those human forces which produce national or municipal greatness may be divided into two classes. The first are individual ; the second may be called social. The individ- ual forces' are obvious and have been so often elaborated in an age characterized by excessive individualism that it is not worth while to dwell long on them. The importance to each citizen and to the community of individual/temper- ance, thrift, intelligence, and energy cannot be overestimated. Nothing can be done without individual excellence. A mis- take is only made when it is supposed that individual supe- riority alone is sufficient. The individual by himself is powerless. Wealth is only possible in a community, and in this community no one lives for himself alone. Can art flour- h ish where but one loves art ? On the contrary, the artist must * jjfrJ" be stimulated by a public which appreciates and encour- ages art, and, other things being equal, the more widely diffused the love and knowledge of art among the people, the higher the excellence which artists will attain. What hope is there for architecture among a people who prefer the cheap and gaudy to the eternal beauty of sublime and simple creations? What hope for music among those who turn away from the great masters to applaud the rattling waltz of a fifth-class composer? What hope for literature where there are none to prefer George Eliot, Thackeray and Dickens tojOuida, Mrs. Braddon and Hugh Conway? It is readily admitted by all who know what they are talking about that in all these pursuits the social atmosphere is of vital importance. It is likewise in business. What does the energy of a merchant amount to if there are none who have the meaiis^to purchase his commodities? Can he de- velop a commerce by himself alone and unaided ? But how THE FUTURE OF BALTIMORE. 161 shall would-be customers provide themselves with means for large purchases without energy on their part? The energy of the merchant must then be supplemented by the energy of his fellows if he would develop any commerce. Thus is he dependent on others. " None __pf us liveth to him- self." Take a manufacturer, let us say, for example, of shoes. It will do him no good to produce shoes unless others have valuable things to give in/exchange. The manufacturer desires a vast market, but this is impossible unless the masses are ambitious and industrious. They must have wants, and energy must accompany these wants. A labor- ing populace poor and indolent and contented with little will make few purchases, for they will not have valuable things to offer in exchange. Thus the manufacturer can only hope to thrive in a prosperous community. The larger the earnings of the artisan and mechanic, the more can he extend his business with advantage. But his dependence does not cease here. The quality of the labor which he employs is a chief factor in success. Labor of hand and brain is the most important element in production, and a highly qualified and moral population is an indispensable condition of permanent national and municipal prosperity. The more closely a community follows Christian principles and its members concern themselves with the welfare of others, the more generally will its prosperity be diffused and the more rapid will be its advance in wealth. "AmJ^my brother's keeper?" If in any nation at any time there is a general inclination to answer that question in the negative, that nation has already entered upon a course which leads to anarchy and barbarism. There are, however, some more special and particular applications of these principles to the problems of munici- 162 PROBLEMS OF TO-DAY. pal life. There are certain fundamental conditions of our future prosperity which no individual as such can supply, but which must be provided by us in our organic capacity as a city and as an important part of a commonwealth, or not at all. T CHAPTER XXV. BAD TAXES BLIGHT A CITY'S GROWTH. AXES are jevied to enable our state and city govern- ments to perform their various important functions, and the burden which theylmpose upon us is by no means a light one. The total state and city tax rate for the resi- {V,, dents of Baltimore is $1.78! on the $100 of property. This doesnot appear to be so high a rate of taxation as it really_isX Taxes are paujput of income, and the important question is to know what ratio exists between taxation of, > property and its income. When we reduce our rate of $1.78! to a percentage on income, it will be found that it is / ; j often equivalent to an income tax varying from fifteen to forty per cent., a tax rate almost unknown in European countries. Taxes are one of the chief elements in determining price in nearly all branches of business which are not monopolies, to which totally different principles apply. The proportion of expenditure which is caused by taxation is larger than is generally realized, even by business men, for they do not stop to reflect upon the effect of taxes on commodities, and other taxes, which are shifted from the shoulders of the one who originally pays them to the shoulders of somebody else. We have, then, in taxes one of those fundamental^cpnditions of industrial life which are beyond the control of the in- dividual as such. Inconsiderate people who know nothing about the nature 164 PROBLEMS OF TO-DAY. of business talk as if it made little difference how taxes were laid. To them the problem appears very simple. Tnere is so nauch money to be raised, and let us, say they, collect it indiscriminately in proportion to the actual selling value of all property. Inasmuch as there is just so much money and no more to be paid to the public treasury, it seems to them to make very little difference how it gets there, provided each one hears what is assumed to be his fair share. This is why our antiquated system of taxation is still maintained in Maryland. We live in an age of sharp competition, always exclud- ing the growing number oi monopolies, and the addition of a small burden to the load already carried by x'arnan engaged in this competitive struggle may bear him down completely, while the lessening of his load may enable him to go ahead and outstrip others. A small percentage on the expenses of business may make all the difference to the business community between prosperity and ruin. Now, nothing can be further from the truth than the statement that it makes no difference how the taxes are laid, since they must be laid some way. A man who acts upon that principle is like a man who should apply the principles and methods of blacksmithing to watchmaking. The machinery of taxation ought to be adjusted to the actual life of modern communities with the utmost delicacy by those who under- stand both business and the principles of taxation. This is another reason why active members of the community should give careful attention to economic and social prob- lems. Their success in so far as it depends upon such a matter as taxation is conditional upon what others do, as well as upon what they themselves do, sometimes even more than upon what they themselves do ; and if I were called upon to name the most serious mistake of American busi- TAX A TION. 165 ness men, I should say it was the failure to give sufficient attention to the social forces which produce prosperity. There are certain things which can neither leave us nor comejo us. City_]pts will serve as an example. It is mani- fest that taxes upon city lots will not injure business. There is a certain amount of land accessible, neither more nor less, and no "taxation will alter this circumstance. City lots in New York are not competing with city lots in Baltimore. More than this is true. If city lots are taxed on__all_ihat they are worth, up to the last dollar of their selling value, as they should be by our law as it stands, instead of dis- couraging enterprise it will encourage it ; for it will make it harder for speculators to withhold the land from those who wish to improve it. Let us take shipping as an illustration of a business which may come to us or which may leave us. Elsewhere, ship- ping is eithej^noJLtaxed at all or is taxed only on earnings, and shipping conducted by foreigners is often positively sub- sidized. Shipping may either leave this port or other ports, and it will be determined by relative advantages. Can, then, anything more absurd be imagined than to tax a dwindling shipping at a high rate, as it was actually pro- posed to do in the last Maryland legislature? Will out shipping be improved if ships and other vessels are taxed on their full selling value ? Can it be doubted that if a bur- den is laid upon shipping the business of our port will con- tinue to decline? If so, who will derive the benefit from the attempt to apply a cast-iron system of taxation ? Other tax-payers will lose, because they will derive no relief from an unsuccessful attempt to lay taxes, and they will be poorer on account of the loss of business which might have been theirs. A large part of our manufacturing and mercantile business 166 PROBLEMS OF TO-DAY. is of a similar nature, and it can be completely prostrated by a bad policy of taxation on our part. Retail merchants and dealers in manufactured articles will not come to Balti- more if they can do much better elsewhere, and they will be able to do better elsewhere if the necessary ex- penses of business are heavier here than in other places. It is consequently to our interest to render these necessary expenses of active business as small as possible, for in that way prices will be lowered and business attracted. We render these expenses smaller when we lessen the burden of taxation on business. Who loses thereby ? No one ; because increased competition lowers prices, and all con- sumers get the advantage of cheaper prices. The problem is to extend the business of Baltimore ; and an -extension of business implies lower prices. This is sufficiently simple. As business extends, the demand for real estate increases, and real estate owners certainly do not lose. The difference between real estate and business, with respect to taxes, may be brought out by this statement, which seems paradoxical until one has reflected upon it : If all taxation should be removed to-day in Baltimore from real estate and placed on active business, particularly on commerce and manufactures. it would cause a sudden and unprecedented fall_in real estate. Business would be crippled, and so many would leave Baltimore that owners of houses and lots would almost be glad to give them away. Should all taxes be removed from active business and placed orf reaFestate", 'on the other hand, it iTHoubtful whether it would produce any perma- nent depreciation of real estate. The measure might indeed so improve business as to bring about higher prices for real estate, and increased activity in building. The experience of New York City goes__tQ confirm-this ; for there business, although legally subject to taxation, is practically well-nigh TAXATION. 167 exempt, and real estate nowhere sells for so high a price. It is to be noticed, further, that there is a deliberate, sys- tematic atternpt_on the part of New York to draw business away from Baltimore by lower taxes. The major of New YorlTpractically refuses to try to enforce the Iffws as he finds them, for there they have the same antiquated laws which we have here, and urges their repeal on the ground that they are the outcome of impracticable theories and hamper business. He urges the repeal of all existing taxes on busi- ness, in order to swell the commerce of New York. It is such considerations as these which led a writer on taxation to frame a practical rule which he wished to " have cut into the stone of the Capitol (in large letters and have them gilded) in the Senate chamber, the hall of the House of Representatives, and in the governor's office." The rule reads as follows : " AVrvv tax anything tliat would be of value to your state, that could and would run away, or that could and would come to you" While this rule may be too sweeping, it is worthy of careful consideration. The "more one reflects upon the nature and the consequences of taxation, the more pro- foundly one is impressed with its far-reaching importance. Taxation may create monopolies, or it may prevent them it may diffuse wealth, or it may concentrate it ; it may pro- mote liberty and equality of rights, or it may tend to the establishment of tyranny and despotism ; it may be used to bring about reforms in industrial society, or it may be so laid as to aggregate existing grievances and foster dissension and class-hate ; taxation may be so contrived by the. skilful hand as to give free scope to every opportunity for the creation of wealth and the advancement of all true interests of the city, or it may be so shaped by ignoramuses as to x68 PROBLEMS OF TO-DAY. place a dead weight on Baltimore in the race for municipal supremacy on the Atlantic coast. The single business man, as an individual, is helpless in this matter. It rests with us, citizens of Baltimore and Maryland, to establish those social conditions which will allow every man the fullest and freest opportunity to do his best to make Baltimore what we wish Baltimore to become. Shall we wait until all our neighboring cities move in this matter, and lag behind with our abominable and barbarous system of business licenses and personal property taxes, or shall we be the first to strike out boldly in the establishment of a rational system of taxation, and thus have the advan- tage over others of a start in the race? It is a cheering sign that our business men have moved in this matter, and passed resolutions petitioning the legislature to submit a constitutional amendment to the people, making possible a new system of taxation. The move has been made none too soon, and it should be followed up by vigorous action. CHAPTER XXVI. A PLAN WHEREBY TAXES MAY BE REDUCED IN CITIES. THE importance of a righuvpjacing of taxes has been considered. The amount of taxes raised is obviously an essential element in "determining the future of a city. Our municipal taxes have become truly exorbitant. Much as we talk about them, few realize it. In my last chaptei it was suggested that the burden might perhaps be better appjciate_cLif our property tax was translated into a tax on the income which property yields. Comparative statistics help us also to understand how great the load of taxation in American cities is. Consider this fact, which I discovered a few years ago in comparing the budgets of New York and Berlin. The interest on, the debt of New York was then nearly sufficient to defray all the expenses of Berlin, nearly as large a city, and one more disadvantageously situated with respect to sanitation and keeping the streets clean. Berlin is governed, it may be remarked, by those who make it their business to understand the principles of municipal adminis- tration ; that is^ so-called theorists. It is said to be the best governed city in the world, and so may not be a fan example ; but this entirechapter could be filled with statis- tics to show how undue a burden we are sustaining in taxa- tion in American cities. It is the commonest thing in the world for worthy citizens to^wjite to their daily papers exhorting the city fathers to 170 PROBLEMS OF F keep down expenses and reduce the tax rate, and the news- papers from time to time come out with head lines like this, " Retrenchment a Necessity." Yet what good does it do? Expenditures continue to swell in our cities relatively faster than in our states or at Washington. While state expendi- A A//tures double, municipal expenditures increase fourfold or more. Qhio may serve as~lm illustration. The expenses of the state increased about forty-six times in sixty years, and the local expenses one hundred times. I have yet to find one exception to this general rule that municipal ex- penditures increase fastex-tlmu^aiuL-Qjher perhaps I should saylocal expenditures, for I mean to include villages and other political units as well as great cities. It is well to say " reduce taxes," but it is said to no pur- *- pose unless it can be shown how taxes are to be reduced. Let us clear the ground not by theorizing, but by examin- ing a few facts which can be established beyond contro- versy. It is a general supposition that the increase in the burden of taxation in our cities is due to corruption. This is doubt- a partial _explan.ation, but very incomplete and imper- fjj\ feet. There are two ^European countries at least where municipal administration is above reproach in respect to integrity of officials, and these are England and Germany ; whereas it may be said generally that in Europe , municipal corruption ij hardly one of the problems of the day. Nev- ertheless, it is true that the expenditures of European cities -have increased in recent years with greater relative rapidity \j^" than those of American cities. This has been satisfactorily . demonstrated by Dr. Simon N_. Patten, of Illinois, in a mon- /*' ograph on the finances of American states and cities. This must not be misunderstood. 1 he statement is not that the expenditures are as large as ours, but that the rate of in- A PLAN TO REDUCE TAXES. 171 crease for ten or fifteen years at least has been more rapi This also is different from saying that the rate of taxation has increased correspondingly, for there are many other possible sources of revenue than taxes. Dr. Patten has also shown some other interesting facts bearing on this problem. J t One is that denipcracy is not the_ cause of increased expen- ditures, as superficial observers so often suppose. Euro-^^^ pean cities generally have at least some restrictions on the ^ right of suffrage, yet their expenditures have increased more rapidly than our own. But there are American facts of still more striking character. It is said that universal suffrage gives a vote to those who have no economic interests at stake in the community, and that they consequently vote__ away other people's money with reckless prodigality. Dr. Patten" nas shown, however, that in small .Northern towns, where the vast majority of voters are tax-payers, the tax rates have increasecl .more rapidly than in the large cities ; further, he has given evidence to show that real estate by urging jjn untimely improvements, like sewers running into the country, as recently happened in Buffalo, have done more to raise taxes than the ignorant voter. The ob- ject of the real estate speculators is, of course, to keep a boom alive. Now, these are no fanciful theories ; they are hard facts. What do they show ? They show at least this : The general public has not gone deep enough in its attempts to explain the growing burden of taxation. The true causes for the growth of municipal expenditures are, after all, not difficult to discover. The functions of the local political unit have been increasing more rapidly than tKose of either state governments" or our federal govern- ment. We hear a great deal about_centralization. The truth is that, relatively speaking, we live in an age of decen- tralization. Our local political units are gaining in impor- 172 'PROBLEMS OF TO-DAY. tance faster than our sovereign states or our sovereign fed- eral government. I do not say that there is no tendency in our central governments to extend their functions. I say merely that relatively they do not hold their own in impor- tance. Sanitation and public schools are two great items in the , budgets of cities. Light and water are two more, and in all ' these respects what satisfied us_once is no longer tolerable. Public parks cost hundreds of thousands and even millions in cities. New York City, for example, proposes to spend $1,000,000 a year to provide small parks in the most crowded portions of the metropolis a me^ure demanded on sanitary no less than humanitarian grounds. Public libraries are maintained by a growing number of cities, and the expense of maintaining these is not insignifi- cant. Boston spent over $160,000 on her public library in a single year recently. Public baths are among the hundred and one other items which might be mentioned. Go through the whole list of things for which the modern city spends money, and it will be found that many items are quite new, while the expenditures for nearly all have in- creased enormously. We have now discovered the cjiief cause oL increased municipal expenditures. Extravagance and dishonesty have, after all, been minor causes, and their importance has been unduly magnified. Many an American municipality is managed without fraud, andin only a few great cities has the dishonesty been what the people have imagined. It has been bad enough, it is true, and it is a burning shame and disgrace to us that there has been so much municipal corruption in America. Nevertheless, that is not the chief cause of large expenditures of public money. It is further safe to say that we have not got to the end A PLAN TO REDUCE TAXES. 173 of the era of increasing local expenditures. When one re- flects upon certain current phenomena, one must be rather inclined to think at times that we have scarcely more than, entered upon it. The public demands on the municipal administration grow steadijy^ year by year. Better paye- ments, improved sewerage, more small parks, and manual training in schools are among the pressing needs of the hour, and a demand for other public expenditures is just beginning to be heard. Play grounds for children and op- portunities of physical culture, that the rising generation may grow up strong and healthy, are among the things which people want. The housing of the poor is a matter over which English cities are extending then- care, and who is wise enough to say that the common welfare may not yet compel American cities to move in this direction? It is needless to continue the enumeration. The growth of municipal expenditure is a part of the growth of civiliza- tion^and is Iikgly_to continue for an indefinite period. We cannot stop it without lagging behind in the march of prog- ress. Whining and complaining do no good. To write aTticles containing nothing but the ceaseless refrain, " reduce taxes," is folly. Yes, we must reduce taxes ; but how? There is a very simple way, and the American city which first enters upon it and keeps to it persistently and systemat- ically is going to have a tremendous advantage over its com- petitors. It is the full and complete utilization of all natural. inonopolies for the benefit of the public. This is the way, / and the only way, to reduce taxes. If our business men will turn their serious attention to this, and endeavor to force right action upon our municipal councillors and our legislators, they will see a most gratifying reduction in their tax bills,, and will witness a new and unparalleled period of prosperity in Baltimore. It is, I believe, perfectly practi- 174 PROBLEMS OF TO-DAY. cable to reduce the tax rate to one dollar on the hundred of property in our city, and that rate is quite enough. The principle which should guide us is very simple, and will readily occur to those who have read the previous articles in this series. // is to exact from every natural monopoly using public property full compensation. What does full compensation mean? It means this : Making just as good terms for the public as a private man could make fur himself. Let us imagine for the moment that a private man owned absolutely the streets of Baltimore. How would he manage the street-car business? He would give no favors to anybody. He would either operate the street cars himself or lease the privilege to the one who would give the most, and never under any circumstances I take it for granted that the man is sane would he give a perpetual lease. Short, terminable leases are the kind private men give, and thus keep complete control of their own property. Yet witness the carelessness and indifference of our business men and the general public about this matter. Every one of us has an interest, and the interest of a single family is very considerable, but no one seems to concern himself about his own share in the public property. Take the case of street-car fares. A certain public policy would ultimately lead to the establishment of three^cent fares, which would easily be worth fifty dollars a year to a family of five persons living a little distance from the centre of Baltimore. Forty dollars a year isjnterest on one thousand dollars. Now, if the head of an ordinary family heard that there was a chance for him to come into an inheritance of a thousand dollars, how eager would he be ! How actively would he follow up all his legal claims ! Yet he scarcely will turn on his heel to influence the legislature in the matter of some most astounding street-car bills now before that body. On A PLAN TO REDUCE TAXES. 175 the contrary, when you begin talking with him on this matter, he will make such petty and trivial objections to a sound policy in successful operation elsewhere that one is tempted to believe that three men out of four lose their common sense when they begin talking about public meas- ures. 1 Our merchants may be said to have a still greater interest in this matter. If fares are reduced, the surplus income of every man and woman in Baltimore will thereby be increased, and their sales will grow in amount. On the other hand, if 1 It has been claimed that street cars cannot carry passengers for three cents in Baltimore. I do not say that they could and still pay nine per cent, of gross revenues to the city in addition to other taxes. I believe they could pay taxes and carry passengers for three cents. It would be necessary to consolidate all the roads, perhaps, and bring them under one management, and owners of the street railroads would be obliged to be content with fair returns on capital actually invested and could look for no returns on fictitious stock or needless issues of bonds. Washington street-car lines sell six tickets for twenty-five cents, a trifle over four cents each, and Congress has compelled each company to give~free transfers from any one of its lines to any other. The dividends are said to be enormous, nevertheless. It must be remembered further that a reduction of fares would increase traffic enormously. The Philadelphia street-car lines reduced fares from six cents to five cents recently, and found their gross revenues increased the first year, while it is expected that the second year will show an increase of vet revenues. The Richmond electric street-car line con- templates a reduction of fares to three cents purely from motives of self-interest. Moreover, the fact that street-car franchises have been sold for from thirty to forty per cent, of gross revenues proves that pas- sengers can be carried in some cases for even less than three .cents ; for when forty per cent, of gross revenues is paid, only three cents out of five collected is left for the company, which, nevertheless^ Jails to receive the benefit of increased traffic from low fares. What I desire is to see franchises put up at auction under condition that fares shall be reduced to three cents. _ A ^v/ 176 PROBLEMS OF 7'O-DAY. franchises are sold at auction, taxes jnay be reduced, and thus they will gain. Who in our legislature suggests proper restrictions on franchises for natural monopolies ? Is it not time for our business men to move in this matter? New York City has already moved, and will obtain increased revenues from franchises in the future, there is reason to believe, for under Mayor_Hewitt a halt has been called in the prodigal waste of public resources, and his last message to the council of New York abounds in suggestions analo- gous to those in this article. Will Baltimore be the last to move? Will Baltimore business men delay action until opportunity to save what public property yet remains is lost? The same principle holds good with regard to railroads operated by steam. Let them pay for every piece of public property its full value to the last cent. To exact less is to rob " the forgotten millions." North Street, public property, is occupied by a railroad. How much annual compensation does the city receive therefor? The use of a street in a great city ought to be worth many_thousands of Bollars a year in rent. If it were my property, I should demand for it whatitwas worth. Why should the city do less ? Or is it not time to stop taking away the property of the many and giving it to the few? Gas supplyaucl electric lights are of the same nature, save that the city ought to Tnake provision as soon as pos- sible to acquire works of its own. Yet we hear a good deal of foolish taJJL about competition in electric lighting still ! Experience will teach us better. But why wait until we have paid the dear tuition which experience charges, before we act? The correct method in such cases is simple enough. Existing companies should be bought out if they will sell at a reasonable price ; otherwise they should be A PLAN TO REDUCE TAXES. 177 brought to terms by a vigorous municipal competition. No legal monopoly should ever be granted a private corpora- tion, for that is worth a great deal of money. As a legal monopoly can only be conferred by public authority, the public ought to derive the advantage therefrom, and what this advantage is, previous papers have shown. I will again only remind readers that Berlin now defrays eighteen per cent, of its expenditure from the profits on gas-works with gas at less than one dollar a thousand. CHAPTER XXVII. THE FUTURE OF BALTIMORE FURTHER DIS- CUSSED. A RECENT trip to New York City, and to Vassar Col- lege, near Poughkeepsie, gave me an opportunity to observe certain phenomena of importance to a student of municipal life, and also to examine with care the three recent messages of Mayor Hewitt to the board of aldermen of New York on the future of that city. s^ The manufacture of gas at Vassar College interested me. l^ J^Phe gas is of a superior quality, as good as it has ever been (\jS^ my lot to burn. Less than twenty thousand feet are manu- factured a day, and the coal must be carted two or three miles from the Hudson River. I was told that it was worth sixty cents a ton to cart the coal to the college. Yet even ? tf <-, on this small scale and under these disadvantageous circum- stances, it costs ^the^college only eighty cents*a jhousand to anufacture its gas, while the people in the neighboring city pay $2.50 for an inferior quality of gas. As gas is manufactured on a large scale in the city, which comprises over twenty thousand inhabitants, and as coal is more readily accessible, it can be seen that the people of PougRkeepsie ought to have cheaper gas, whereas they pay over three times as much as Vassar College. Possibly mayors of American cities have in recent years - written able\ messages than those of Mayor Hewitt, but it has never been my good fortune to read one of them. The THE PROGRESS OF BALTIMORE. 179 vigorous defence of the public welfare and appreciation of the true nature of^he jieeds of New York City revealed by these messages remind one of the patriotism of a man like De Witt Clinton. It seems to me that Mayor Hewitt ranks facile princeps among all mayors of American cities for the past twenty years or more. An important question for all our states and cities is to know how to recover public rights which have been thought- lessly allowed to pass into private hands, and to safeguard such public property as jjtjlL_ejdsls after the reckless prodi- gality with which legislatures and municipal councils have squandered other people's money during the past genera- tion. The Sun has already published editorials on consti- tutional changes which are needed to accomplish this desir- able end, and the recommendations made in these editorials are in keeping with the teachings of political science. The chief of them is to provide by constitutional amendment that any corporation which seeks or accepts any new legisla- tion thereby places itself under the reserved rights of the people to control all grants of privileges to corporations. , Thus the effect of the unfortunate Dartmouth College de- cision is to a certain extent obviated, and artificial persons are rendered subject to the law more nearly like natural persons. The recommendations of Mayor Hewitt contain similar provisions for municipal franchises. He would make natural monopolies pay for every new privilege, and thus gather up the fragments of public property, that nothing further may be lost. The time appears to have come for a substitution of_ cable or electric traction for horses on street railways. This is desirable^ on many accounts, and is recommended by the mayor. But _he adds the following remarks to his approval of the change : " Inasmuch as this change will be profitable, however, to the railroad com- 180 PROBLEMS OF TO-DAY. panics, a portion of the saving should be secured to the city treasury. I recommend that a careful investigation be made as to the amount of this saving, in order that the necessary consent of the common council may be given upon conditions which shall be fair to both parties. The value of the franchise will depend, of course, largely upon the volume of the business, and therefore the same percent- age of the receipts could hardly be exacted in every case. But the companies should compensate the public for the use of the streets upon an equitable basis of division, and the legislature should carefully guard the rights of the city and the interests of the tax-payers in any legislation author- izing the use of cable traction." Suggestions in regard to rapid transit are made which are za of value to us in Baltimore in shaping our future, and par- ticularly in view of the proposition to utilize Jones's Falls for rapid transit. It is recommended by Mayor Hewitt that the city provide rapid transit, which it can do cheaper "" than private parties, for it can borrow money at three per cent., while private individuals must pay five. It is sug- gested that the rapid transit roads be leased for thirty-five years for five per cent, of their cost. The city would net two per cent., which in thirty-five years would redeem the principal, and thus the road would become public property without the expenditure of a cent in taxation. This is anal- ogous to principles which have, without difficulty, been ap- plied in other countries, and seems to be favored by men most competent to speak on this subject in New York, although some evidently think that the city should manage the entire enterprise without the intervention of a corpora- tion. The success of the Brooklyn Bridge Street Car Line, operated by public authority, has been cited as a proof of the superiority of public management. THE PROGRESS OF BALTIMORE. 181 spirit- should be cultivated by us in Baltimore if we would make our future what we would like it to be. Public spirit leads people to reflect on the public welfare, r i _. .._ , ,. , , A ._ _ _ yj and to consider measures from the standpoint of the greatest good to the greatest number. A correct course of action is an inevitable result ; public rights and public property are watched with jealous care, public enemies are exposed, and expensive errors in municipal measures are avoided. New York City now finds it necessary to go to an enormous expense in tearing down buildings in the crowded parts of the city to provide small parks as breath- ,- ing places for the poor people. It would have been practi- cable to have reserved frequent open squares years ago, and it would not have cost the hundredth part of what it now does to construct these little parks. It was well known by those who thought about such matters that they would be needed, but there was not public spirit enough to induce action. Open squares are needed in Baltimore in various sections now destitute of them, and to acquire them to-day will involve a far smaller burden than to wait until popula- tion is denser in these sections. A little forethought and public spirit are the only requisites. New York now finds it advantageous to acquire water-front. This involves an enormous outlay. How much easier it would have been to reserve all the water-front at the beginning ! Lack of public spirit led again to an expensive mistake. There . are various ways in which public spirit can be measured. The amount of public enterprise is a good test. The provinces of Quebec and Ontario, in Canada, may be profitably compared. The Canadians in Quebec have so little public spirit that it is impossible tc maintain good roads by public authority ; consequently highways are handed - < over to private corporations, who collect high tolls and thus 182 PROBLEMS OF TO-DAY. obstruct business by what amounts to a system of indirect taxation. Public spirit is more active in Ontario, and there are few if any toll roads in that province. This difference in public spirit is a chief cause of difference m wealth. One of my earliest recollections I can only just remember it was a toll_r_oad in New York state, but for many years L. ) - I have not seen one in New York or Massachusetts. One c^fc* <*- of the first conditions of prosperity is the freest exchange of services and commodities, and in a very wealthy com- munity toll roads will hardly_J)e found. This is but one illustration. Where public spirit is in a low condition public authority is unable to perform its proper functions, and i they are with loss handed over to private individuals. , -, O Huxley's article on "The Struggle for Existence" in the r mf Nineteenth Century is valuable reading for those interested in the future of Baltimore. Huxley shows that highly quali- fied labor, both as respects physical development and train- ing of hand and head, are to be the first conditions of success in the future struggle for national and municipal pre-eminence. On this ground he favors the restriction of d labor and generous provision for technical education. Huxley regards an ignorant person as a " burden upon, and, so far, an infringer of, the liberty of his fellows." So pro- dly, indeed, is he impressed with the necessity for ed- ucation as a condition of survival that he places a tax for education in the same category as "a war tax levied for purposes of defence," It was, in fact, when England saw *jP her industrial supremacy threatened by the better educated German that she began to act vigorously in this matter, just as France, when she saw her military power overthrown by " the schoolmaster at Sedan," began to introduce uni- versal and compulsory education. Would we in Baltimore hold our own with the cities like Boston, New York, Chi- THE PROGRESS OF BALTIMORE. 183 cago, and St. Louis, doing so much more than we for edu- cation, we must bestir ourselves. Similarly, Huxley shows that a temporary success gained by starvation wages and child labor is illusory, because in lowering the efficiency of man, the chief factor in production, power to hold one's own in the struggle for existence is lost. " A population," says Huxley, "whose labor is insufficiently remunerated must become physically and morally unhealthy, and socially unstable, and though it may succeed for a while in industrial competition by reason of the cheapness of its produce, it must in the end fall, through hideous misery and degradation, to utter ruin." Huxley emphasizes the fact that he speaks as a naturalist, and as such his pre-eminent ability will not be questioned. . It is incomprehensible how a man can appreciate the ad- vantages to a country of improved breeds of horses and cattle, and at the same time fail to see that a strong, vigor- ous, and intelligent population is a thousand times more important in the race for wealth. What we want to do in Baltimore is to develop our strong , > points. A city is like an individual. Formerly every man * did everything, taught school, preached, practised medi- cine, made shoes, built houses, and I know not what else besides. Now the condition of success for states and cities, as well as men and women, is to find out their strong points, and to do some things better than anybody else. It is often asked what makes Baltimore grow? Where do the people come from to occupy all thes'e new houses ? One ,%^ reason for our growth is that Baltimore is a delightful city to live in, and also, comparatively speaking, a cheap one, People come here in vast numbers on these two accounts, for there is in modern society a large class of people who 184 PROBLEMS OF TO-DAY. are so situated that they can easily change their residences. 1 litjle inquiry will probably convince any one of the impor- *>| ought to be developed prudently but vigorously. Public improvements should go forward as fast as the municipal finances will warrant ; public property should be fully util- ized for the benefit of the public ; cheap water, cheap light, and cheap transportation should be provided. The cheaper these indispensable elements of life, the more will people be attracted to Baltimore. The indispensable conditions of life are also elements in the cost of business, and to reduce them gives us a superior advantage in the struggle for exist- to wages, the real question is not how much are wages ^^^^M^MiM^W^^MM in money, but what will money wages buy? Baltimore has in this an advantage over a place like New York. The Johns Hopkins University, for example, has thus an advantage over Columbia College in New York City. Other things being equal, Baltimore can, for the same salary, get a better man than New York. For my part, having lived in both cities, I should prefer a salary of #2000 in Baltirnpjp tn nnp . of $4000 in New York. The cheaper the cost of living, the better the class of employe's business men can get for a given rate of wages. This was why the manufacturers in England worked so hard to get the duties off imported food products forty years ago, and the cheaper cost of living- resulting therefrom made possible the industrial expansion ot England. The educational advantages of Baltimore are a cause of increased population, of considerable moment. It is proba- 1 Twenty new houses have recently been sold or rented on a square near my home. Of the twenty families occupying them, seven have come from abroad. THE PROGRESS OF BALTIMORE, 185 ble that the Jorms_Hopjdns jjniversity alone will lead to an expenditure of a million dollars a year by professors, stu- dents, and families who are by it brought to Baltimore, and the present expenditures connected in the one way and another with this institution are sufficient to support^ a small town. The Hopkins Hospital will similarly help Baltimore, as will the new Maryland College_fgr._Women. The Peabody Institute, the Pratt Library, and even a private gallery, li that of Mr. Walters, do their share to bring money and peo- pie to Baltimore, and thus to keep the city alive. Yet it has actually been proposed to cripple all thqse institutions save the Pratt Library, which ranks as a public institution by taxation ! The severe storm which we experienced in March, in Bal- timore, has again emphasized the importance of electrical subways. The fact that there can never be any real com- /Lu petition in the matter of these subways is so self-evident that no attempt has, so far as I know, been made to apply the principles of competition to them. There is a choice > between two courses of action only ; namely, reliance upon a private monopoly and a public undertaking. New York City is trying a private monopoly, arraValuable lessons may be I ft derived from the experience of that city. The private com- pany was strongly resisted by the companies which it was proposed to force to bury their wires, and finally the people were startled one morning to see in their newspapers the intelligence that Jay Gould, of the Western Union Telegraph Company, against which the law authorizing the subways was especially directed, had acquired a controlling interest in the subway company. Something like this may always be expected to happen. It is similar to what railroads have s -* always done with private competing canals. Again, it is seen that one private company is not strong enough to co- 186 PROBLEMS OF TO-DAY. erce powerful electrical corporations of one kind and an other, while a private monopoly encounters an obstacle in the odium which always attaches to private monopolies. Mayor IJewitt_speaks of this system as " certainly very ob- ^tionable." It would be supposed that the experience of New York would be sufficient to convince any one that it is the function of a city to provide electrical subways. These can readily be made to yield an income if constructed on the plan outlined in the last article for rapid transit. M^oney can be borrowed at three per cent, or a trifle over that, and then a re_ntal can be collected from the various electrical companies which will yield more than the percentage paid by the city on borrowed money. It would seem that very moderate rentals ought to yield ten per cent, on the invest- ment in a city like Baltimore, and this would soon pay off the principal of the debt. 1 It is important that cities as well as states should protect pjeraon and property by public authority, and the prospect of a""possible derjarture from sound policy in this respect in Maryland led me to use these words in one of my articles for the Baltimore Sun : Reports of proceedings in the legislature at Annapolis compel me to mention a matter which would naturally be treated in a later paper. A bill has already passed the Sen- ate providing for the employment of special policemen by corporations and firms. It is very questionable ta entrust even to this extent functions__of_ government to private parties. It is a return to the anarchistic, disorganized state of society, when the old barons had their retainers and engaged in warfare to suit their special pleasure. It was generally supposed that we had left this barbarism, but 1 Paris derives a large annual rental from the gas company which supplies Paris with gas for the use of the municipal subways THE PROGRESS OF BALTIMORE. 187 there is an unfortunate tendency to return to it in the United States. It is well to notice some thoughtful remarks on oc- currences of the year 1886, which appeared in two news- papers. The Missouri Republican, in its issue for January i, 1887, says : "The past year will be forever memorable as the year in which private armies of mercenary soldiers be- gan to be established in this country. ... It has been fondly supposed that public law was strong enough to do right and maintain right between the citizens over whom the commonwealth has jurisdiction. That, it now seems, was an error. Wherj^syiifiexence occurs between a great pork- packer and his employe's, it s not to the state that party has resort ; and to check apprehended resistance the pork-packer finds it easier and perhaps cheaper to call out a regimentofjiired_soldiers who have been armed and trained for the service of the highest bidder." The New York Na- tion, in its issue for January 27, 1887, says: "It cannot be too soon or too well understood that, as an armed organiza- tion offering itself for hire for purposes of defence in various parts of the Union, Pinkerton's men are, we must all admit, //> -.- n , ^^^^^^^ \J ^ the greatest disgrace that has befallen the United States. . . . Its appearance in any other civilized country would fill to-day every man in it with shame and astonishment." More may be said : It would be impossible elsewhere. It is not clear what is the intention of those who are behind this bill, but it would seem that it opens the door to all sorts of_abuses. We in Maryland are quite capable of maintaining the peace without the assistance of imported cutthroats and assassins from the slums of other cities, and the least concession to public decency that can be demanded is the Ohio law, which forbids the employment of non-residents as special police- men or deputy sheriffs. In Ohio no one outside of county may be sworn in as deputy" and in Baltimore no one 188 PROBLEMS OF TO-DAY. not a resident of the city should be employed as a special policeman. This is the minimum concession. The proper *^way, it would seem, to regulate the matter would be to have i ^*--<^all policeman appointed by public authorities, and allow, under certain circumstances, the employment of policemen by private parties willing to pay therefor. It is to be noticed I 1^| ..that after sad experience other states are passing laws to for- . bid the employment of non-residents as deputv sheriffs or t^fcA > ~ 1 ~ special policemen ; and by a little forethought in this matter we can prevent Jbloodshed and bitterness between classes such as we see elsewhere. It is to be hoped that working- *' men and all who have the welfare of our state and city at heart will bestir themselves in this matter before it is too late. This is one of those cases where employment of home labqrjs the only safe policy. The bill to which reference was here made passed the , but was fortunatejv defeated by the governor's veto - Municipal problems must now be left, in order to devote the remaining papers in this series to other subjects. CHAPTER XXVIII. OUR FUTURE RAILROAD POLICY. RAILROADS have already been discussed in one papei in this series, but certain aspects of the problems con- nected with railroads were then reserved for future consider- ation. Probably among German statesmen of recent years no one has had a higher appreciation of America than Edward Lasker, and probably no one has entertained general views more m harmony with prevailing sentiment in this country. It will be remembered that fnnrrpgs ?cc^rj r^^inHant; of sympathy on occasion of his death, which Bismarck was requested to transmit to the German^Parliament, and that the great German statesman refused to comply with the request to assist in honoring his bitter political opponent. Lasker had relatives in America, and shortly before his death visited our country, and in various ways seems to have acquired some familiarity with our institutions. I met Lasker in 1880 in Berlin at a reception given by the Ameri- can minister, and talked with him about the railroad prob- lem, then nearing its solution in Prussia by the purchase of the private roads. Laskerhad conducted a remarkable par- ?&e\/ liamentary investigation into the affairs of the private rail- roads in 1873, and exposed their moral rottenness so thor- \~^ tf ~^ oughly that public opinion began to react in favor of state railroads. It was natural, then, that he should be found on the side of the government in the proposed acquisition of IX) PROBLEMS OF TO-DAY. the railroads, although on other occasions so bitter an pppo- nent of the government. I was, however, specially struck his remark about American railroads. He said : " You in America must sooner or later acquire your railroads and place them under public management. It will come as a necessity, for natural forces are at work which wil^ compel you to take this course." This would have been a less sur- prising statement from other members of the Parliament, but coming from him, it deserves careful attention. Is it $flteue that forces are at work~which will bring about pub- routes. If our federal constitution prevented any charter 1l~f* ' for any purpose whatsoever from being granted for over CA>*-*-* fifty years, and compelled the reservation of right to re- purchase, and of other rights in behalf of the general pub- Jr <- lie, it would be a reform worth talking about. The English Parliament, has gone even further than this with respect to certain classes of charters, rendering it impossible to grant them for over twenty-one years. " The federal government ought to embrace every opportu- r-< f \ \ nity to acquire railroad property, to be leased, perhaps, for therjrgsejiL. What propriety was there in the construction "Jj^/ of the Pacific railroads at the pnbjjfi expense, and then turn- ^ ing them over to private parties ? Would not the people have been better served if government had kept the right of property in the roads and leased them for a limited period, under stringent conditions, to the highest bidder? The course for Congress to pursue at the present time in regard to these roads is sufficiently clear, and if pursued would be the first step towards reform. It is to foreclose the mortgages, acquire the property, and lease it for twenty years. Should the federal government guard properly all public property and all public rights, it would find itself in the possession of very considerable annual revenues from 1 Two things should be kept in view in leases of railroads : first, the Im^s^pos e^fmght and passenger charges ; second, the highest pos_sible percentage of gross revenues for the public treasury. Our Baltimore experience is irisFrucfive. Although we charge nine per cent, of gross revenues for street-car franchises, and in addition tax jll thgir stock and plant, it has never been found to prevent street-rail- road construction. 194 PROBLEMS OF TO-DAY. other sources than forms of taxation, which are restrictions on the free movements of commerce and industry. A federaltax which is needed is one which will yield a steady revenue, and a revenue which can be increased if gQH^MfflBHHMMF _ *^ need be. A tax on the gross revenues of all railroads, sleep- ing car, express, telegraph companies, and the like, engaged in interstate commerce, might not be an undesirable form of taxation, and might remove Hit; possibility of a recurrence of past financial embarrassments. There is the more reason for this because these powerful_corporations are now trying ,'--. to resist every effort to make them contribute .their proper share of state and municipal burdens, on the ground that states cannot tax them, because in so doing it interferes with interstate commerce. CHAPTER XXIX, THE INNOCENT SHAREHOLDER. WE hear much in these days of the innocent purchasei of railroad shares and other property with which fraud has been connected. The innocent shareholder has been made to cover a multitude of sins in the discussions on the Pacific ^ailroadj in the United States Senate ; and this same character figured largely in the arguments on the Jacob Sharp Broadway franchise before the Court of Appeals in New York state. It must be acknowledged that the inno- cent stockholder, especially in the person of the widow and orphan, has done^ejtceUeat- service in the past, and is likely to become more prominent in the future. The Court of Appeals rendered a decision in the Broadway street-car case which must strike the economist as a little startling, and which, I will venture to assert, will come to be recognized as bad law inside oj" twentj^years. The charter was revoked ; but the franchise and all the rights of this corporation, after it had met with legal death, passed over to the directors of the railroad, to be used for the benefit of the various claimants; and of course, claims for all it was worth had been established at the earliest pos- sible moment. The peopje^gotjthe law, the shell of the nut ; but the thieves got the property, the meat of the nut. History will surely have something to say about this legal hair-splitting. Suppose the public has rights like private individuals, what must necessarily result therefrom? Those 1% PROBLEMS OF TO-DAY. who receive property stolen from the public must be treated like any otherinnocent receivers of stolen goods. We may feel very sorry for them, but we take the property away nevertheless, and restore^ it to the^ rightful owner. But let ir* us consider the case of the innocent shareholder a little more carefully. A recovery of public property might work hardship in some cases; but is the innocent shareholder the only person to be considered? By no means; the millions comprised in the term " the general public " are again for- I ngotten. A very few persons might have suffered if the prop- erty which Jacob Sharp stole had been restored to its right- ful owners, the public ; but over a million people suffer in New York on account of this theft, and some of them are widows, and orphans, and day-laborers. No one will for a moment deny, provided he knows anything at all, about the facts that passengers can be carried at a large profit on Broadway, in New York City, Yor three cents each. The franchise could have been sold for a small percentage of gross receipts on condition that passengers should be car- ried for three cents. This would have been a slight relief to the tax-payer and a very great one to all poor people. Many a poor widow and orphan and thousands of workingmen trudge the streets of New York wearily for miles to-day who might ride if fares were three cents. Every day of the year sorrow and hardship are inflicted upon thousands of inno- cent and worthy people because they were forgotten, while a few other innocent people, receivers of stolen goods, were remembered. I submit that this is an iniquity. Those who had money enough to buy shares and bonds were not the most helpless class in the community. It is easy enough for one who thinks the rights of the many equal to the rights of the few to say what ought to be done. It is to defend public property just as private property is defended. This THE INNOCENT SHAREHOLDER. 197 is the way to root out the anarchists, and the only way to make a permanent impression on them. Not an abolition of property rights is wanted, but an extension of property rights, and vigorous measures to defend the rights of the property of the many as well as of the few. Property is sacred ; and when all property, that of the public as well as oT tffe individual, that which resides in one's own person, one's strength the labor power and the health, bodily vigor, and mind of the workingman are properly guarded, attacks on private property need never be dreaded. So long as publicjhjejfes can crawl behind the innocent stockholder and place the widow and orphan between themselves and pub- lic wrath, public property has no adequate defence, and can have none, because those who get it at once begin to dispose of it. If, however, we as a people begin to show a higher ap- preciation of our own rights and treat our enemies with less gentle consideration, people will hesitate about purchasing property fraudulently acquired; and this will produce a wholesome habit on the part of purchasers of stocks and bonds of making inquiry about methods whereby alleged rights were secured. The proper method for protecting really innocent purchasers of stocks and bonds is easy enough. It is to provide civil as well as criminal remedies against the thieves. It is not difficult to give those who suffer at the hands of a man like Jacob Sharp ample civil remedies whereby they can recover damages. It is a thing which has already been done in other places, and for which precedent in somewhat similar cases can probably be found i the legislation of every American state. I think the English law of corporations already provides ample reme- dies for a case like that of Jacob Sharp, and I am very sure that the German law the latest and most admirable law 198 PROBLEMS OF TO-DAY. for private corporations is all that could be desired in this respect. As for the rest, people will soon become dis- gusted with the " widow and orphan " plea, for it is made to do duty so often by scoundrels. It has been said we should not pay off the public debt of the United States because the 1 widow and orphan might suffer ; and a good deal of pathos has been evolved on their account. Henry C. Adams, how- ever, takes up the public debt and analyzes it in his work " Public Debts." He shows that out of $664,000,000 of registered bonds, $410,000,000 are held in sums of $50,000 and over, and he expresses the not unnatural conclusion, I" It seems a little ludicrous to urge the maintenance of a federal debt as a measure of charity to dependent persons." Over 73,000 persons held registered bonds, but of these about 1500 held two-thirds of the total amount. It is not enough for corporations to come before the .public with statements of the number of holders of stock and their wide distribution. We want to know more than that. We want an analysis of the wealth of the corporation in ques- tion ; and if the information is to be of value, we must be told just what percentage of stock is owned in small amounts, what in moderate quantities, and what percentage in large blocks. Should one of our states or our federal govern- ment begin from this time forth a vigorous defence of pub- lic property and public rights, a few persons of undoubted innocence and integrity would suffer at first ; but only at first, for people would soon be more circumspect than heretofore in purchases of stocks and bonds ; and as for the few real sufferers, we could well afford to indemnify them out of the public purse. As this would be bad policy on many ac- counts, it would be better to raise money needed for this ourpose by private and voluntary offerings. When it hap- THE INNOCEXT SHAREHOLDER. 199 pens that members of the dependent classes, like widows and orphans, are injured by a recovery of public property which has been stolen, I am willing to put my name down on a subscription list for their relief for a generous sum, and to use all the influence I have in inducing others to do likewise. r CHAPTER XXX. THE DEPENDENCE OF ARTIFICIAL MONOPOLIES ON NATURAL MONOPOLIES. ^ I S HE man of one idea is in some_respects a useful man, J_ for he sees a portion of the truth, and the intensity of his conviction in regard to its importance leads him to be- come an apostle on its behalf. Tariff_refbrmers who find in protectionism an explanation of all the evils with which America is inflicted are doubtless blind to the real significance of innumerable classes of phenomena, but they are often on this account the more ardent in the propagation of the truth which they do see. Doubtless fanatics are needed to help on in the world's work. Nevertheless, one-sided advocacy of true principles has its_disadvantages, for an exposure of the exaggerations into which men are thereby drawn leads many to overlook the kernel of truth about which so much error has gathered ; or, to use a different figure, those who perceive the vast amount of chaff which incloses the wheat are too often inclined to reject the chaff and the wheat alike rather than to take the trouble to separate the two. Much nonsense is written about the tariff and monopoly, and the Chicago Gas Trust has even been connected with protectionism, with which in reality it has about as much connection as the rainfall of Baltimore with the length of the river Nile, It seems to me desirable for us to fornqLdear notions about the actual workings of a protective Jariff, and the consequences which in reality may be attributed to it. THE DEPENDENCE OF MONOPOLIES. 201 I think that we will thus, on the whole, contribute vastly more to true and permanent progress than by a blind ad- vocacy of we know not what. It has been attempted in previous articles to show that certain pursuits are in their own inherent nature monopolies. These have been enumerated and described. They have yJtA , t become of vast_ importance during the past fifty years, but, nevertheless, they include only the minor part of our indus- trial life. The great majority of men are engaged in pur- suits which are not natural^ monopolies ; and if these men contrive to make of them business monopolies, it shows at once that something is wrong. Commerce, agriculture, mining, and manufactures are only in rare ancTexceptional. cases natural monopolies. Yet we see a great many mo- nopolies which may be placed in one of these classes. They are all artificial monopolies, and consequently are evils "~a^^^**^^^^"*^*" i-i -^. * -._ -- ^ which should be suppressed. They violate the fundamental principles of our existing social and economic order, and are, as has been already stated, socialistic and revolutionary. There are two causes of artificial monopolies. The first * is legislation in behalf of men engaged in a pursuit not a natural monopoly. The second is the connection of a pur- suit not a natural monopoly with one which is a/natural mo- nopoly, so that the two become, to a certain extent, one. I lay it down as a general proposition that artificial monopo- lies are businesses which have become monopolies only by an alliance with a business which is a natural monopoly. What 7 legislation, as seen in a protective tariff, does, is simply to aid this alliance, to render it easier to form it, and to make it more impregnable when formed. He who thinks that tariff reform alone would remove monopolies and trusts, has not grasped the ABC of political economy. I ask the readers of the Sun to remember this. I believe that politi- 202 PROBLEMS OF TO-DAY. cal economy is sufficientl^jidvanced to enable me to pie diet this with almost as great certainty as an astronomer can predict a coming eclipse, and I am willing to take upon myself whatever risks to my reputation as a scientific man are involved in this prediction. A reform in the field of natural monopolies must accompany tariff reform in order to uproot artificial monopolies. The transfer of_ba.ggage from houses and hotels to rail- road stations, and from railroad stations to houses and hotels, is not a natural monopoly, but it is a business which in every one of our great cities has becorne a partial mo- nopoly. How did the business become an artificial monop- oly? How has competition been well-nigh crushed? Be- cause in each great city one or two companies form alliances with railroad companies and obtain exclusive privileges on the trains and in the stations, the railroad companies obtain- ing some quid pro quo the railroad companies or some of their officials, for I think it is not so often the stockholder who receives the benefit as various officials who are let in on the ground floor. Thus it was that in 1879 the Erie Railroad was found covered with barnacles ; but on . the whole there has been an improvement in this respect in recent years. But this is merely said " by the way." As railroads are natural monopolies, those dependent upon them are often made monopolies by their action. The Standard Oil Company serves as another illustration. It obtained a monopoly through an alliance with the rail- roads of the country, and this gave it special freight rates which no one else could secure. The report of the special committee appointed_J.q_jnY:estigate the railroads in New York in 1879 showed that the Standard Oil Company had received in rebates ten millions of dollars in eighteen months. It was impossible for competitors to stand up THE DEPENDENCE OF MONOPOLIES. 203 Against such frightful odds. Quite recently a railroad in Ohio was found to have given the Standard Oil Company an advantage of three hundred and fifty per cent, over Mr. George Rice, of Macksburg and Marietta, their chief com- petitor in that part of Ohio. 1 It was this alliance with a nat- 1 This is not quite accurate. The arrangement was that, on oil shipped from Macksburg to Marietta, Mr. Rice should pay thirty-five /- cents a barrel, and the Standard Oil Company ten cents, but that . *- i 0- of the thirty-five cents collected from Mr. Rice, twenty-five should be turned over to the Standard Oil Company. The railroad was the Cleveland and Marietta, then in the hands of a receiver, who was re- moved by Judge Baxter, of the United States Circuit Court. The following account, condensed from reports which appeared at the time, gives the details of the case : THE CIRCUIT COURT OF THE UNITED STATES, Southern District of Ohio, Eastern Division. PARKER HANDY AND JOHN PATEN, TRUSTEES, vs. THE CLEVELAND AND MARIETTA RAILROAD COMPANY ET AL. This suit was commenced in the Common Pleas Court of Washing- ton County, Ohio, January 12, 1885, to foreclose a mortgage upon the road and other property of the defendant, the Cleveland and Marietta Railroad Company, in which Phineas Pease was appointed receiver. . . In March, it was transferred to this Court. Everything progressed sat- isfactorily until October, 1885, when, upon complaint made of unjust discrimination by the receiver, an investigation was had, resulting in the development of the following facts : The Standard Oil Company owned or controlled certain pipe lines through and by means of which it collected and piped the oil procured by it in the vicinity of Macksburg, a station on the said road, to be carried thence by rail, either to Cleveland or Marietta. It thus con- trolled a large amount of freight which the receiver was, very naturally, solicitous of securing. But the conditions proposed were so unusual and unjust, and oppressive to rival shippers, that the receiver, after re- uctantly acquiescing in the company's demand, sought to fortify him- self by the "advice of an attorney, and to this end wrote the following Communication : 204 PROBLEMS OF TO-DAY. ural monopoly, and this alone, which enabled the Standard Oil Company to secure a monopoly. The competitors of this concern have not_retired before its superior business ability, but before its cheaper freight rates. It is by pursu- CAMBRIDGE, OHIO, Feb. 25, 1885. Edward S. Rapallo, Esq., General Counsel for Receiver, 32 Nassau Street, New York: DEAR SIR : This will introduce Mr. J. E. Terry, Assistant General Freight Agent of this road, whom I send to New York to counsel with you in regard to verbal arrangements made with the Standard Oil Company for trans- porting the oil product along the line of our road to Marietta. Upon my taking possession of this road, the question came up as to whether I would agree to carry the Standard Company's oil to Marietta for ten cents per barrel in lieu of their laying a pipe-line and piping their oil. I of course assented to this, as the matter had been fully talked over with the W. & L. E. Company before my taking possession of the road, and I wanted all the revenue that could be had in this trade. Mr. O'Day, Manager_of the Standard Oil Company met the General Freight Agent of the W. & L. E. Railroad, and our Mr. Terry, at Toledo, about February 12, and made an agreement (verbal) to carry their oil at ten cents per barrel. But Mr. O'Day compelled Mr. Terry to make a thirty- five cent rate on all other oil goint; to Marietta, and that we should make the rebate of twenty-five e.-nts per bairel on all oil shipped by other parties, and that the rebate should be paid over to them (the Standard Oil Company), thus giving us ten cents per barrel for all oil shipped to Mari- etta, and the rebate of twenty-five cents per barrel going to the Standard Oil Company, making that company save twenty-five dollars per day clear money on Mr. George Rice's oil alone. In order to save the oil trade along our line, and especially save the Standard Oil trade, which would amount to seven times as much as Mr. Rice's, Mr. Terry verbally agreed to the arrangement, which, upon his report to me, I reluctantly acquiesced in, feeling that I could not afford to lose the shipment of seven hundred barrels of oil per day from the Standard Oil Company. But when Mr. Terry issued instructions that on and after February 23, the rate on oil would be thirty-five cents per barrel to Marietta, Mr. George Rice, who has a refinery in Marietta, very naturally called on me yesterday, and notified me that he would not submit to the advance because his busi- ness would not justify it, and that the move was made by the Standard Oif Company to crush him out. [Too truti^ THE DEPENDENCE OF MONOPOLIES. 205 ing a shrewd policy in this respect that Mr. Rice has been able to maintain an existence as an oil refiper. Wherever freigh^rates are too much against him he retires from the field and seeks another market where he can contend on an Mr. Rice said : " I am willing to continue the 175 cent rate, which I have been paying from December to this date." Now, the question naturally presents itself to my mind, if Mr. George Rice should see fit to prosecute the case on the ground of unjust discrimi- nation, would the receiver be held, as the manager of this property, for vio- lation of law? While I am determined to use all honorable means to secure traffic for the company, I am not willing to do an illegal act (if this can be called illegal) and lay this company liable for damages. Mr. Terry is able to explain all minor questions relative to this matter. Hoping for your careful consideration of this matter and an early reply, I remain, sir, truly yours, P. PEASE, Receiver and General Manager. REPLY OF MR. RAPALLO. 32 NASSAU STREET, NEW YORK, March 2, 1885. General Phineas Pease, Receiver Cleveland &* Afarietta Railroad Co, : DEAR SIR: My opinion is asked as to the legality of your making such an arrangement with the Standard Oil Company as set forth below: The facts, as I understand them, are as follows : The Standard Oil Com- pany proposes to ship, or control the shipping of a large amount of oil over your road, say a quantity sufficient to yield you $3000 freight per month. That company also owns the pipes through which oil is conveyed from the wells owned by individuals to your railroad, except those pipes leading from the wells of Mr. George Rice, which pipes are his own. This com- pany has, or can acquire, facilities for storing all its oil until such time as it can lay pipes to Marietta, and thus deprive your company of the carriage of its oil. The amount of oil shipped by Mr. Rice is comparatively small, say a quantity sufficient to yield $300 per month for freight. The Standard Oil Company threatens to store, and afterwards pipe all oil under its control, unless you make the following arrangement, viz.: You shall make a uniform rate of thirty-five cents per barrel for all persons excepting the Standard Oil Company; you shall charge them ten cents per 206 PROBLEMS OF TO-DAY. equal footing. The competitors of the Standard Oil Com- pany have never complained of the superior skill or superior business ability of the Standard Oil men, but of the favorit- ism which has been shown them by the railroads; and barrel for oil, and also pay them twenty-five cents per barrel out of the thirty-five cents collected from other shippers. It may render the subject less difficult of consideration to determine, first, those acts which you cannot with propriety do as Receiver. You are by the decree vested with all the powers of receiver according to the rules and practice of the court, are directed to continue the operations of the railroad, and can safely make disbursements from such moneys as come into your hands for such purposes only as the decree directs, viz. : wages, interest, taxes, rents, freights, mileage on rolling stock, traffic balances, and certain debts for supplies. In my opinion this would not protect you in collecting freight from one shipper and paying it over to another. All moneys received therefor, from any person for freight over your road, must pass into your hands and there remain to be disbursed by proper authority. After an examination of your statutes, howevej. I find no prohibition against your allowing a discount, or charging a rate less than the schedule rate to a shipper on account of the large amount shipped by him. As you are acting, therefore, in the interest of the company, and endeav- oring to increase its legitimate earnings as much as possible, I find nothing in the statutes to prevent your making a discrimination, especially where the circumstances are such that a large shipper declines to give your road his freight unless you allow him to ship at less than the schedule rates. Therefore, there is no legal objection to the making of an arrangement, which in practical effect may be the same as that proposed, provided the objections pointed out above are obviated. You may, with propriety, allow the Standard Oil Company to charge twenty-five cents per barrel for all oil transported through their pipes to your road, and I understand from Mr. Terry that it is practicable to so arrange the details that the company can, in effect, collect this direct, without its passing through your hands. You may agree to carry all such oil of the Standard Oil Company, or of others, delivered to your road through their pipes, at ten cents per barrel. You may also charge all other shippers thirty five cents per barrel freight, even though they deliver oil to your road through their own pipes, and this I gather from your letter and from Mr. Terry would include Mr. Rice. You are at liberty, also, to arrange for the payment of a freight by the Standard Oil "Company calculated upon the following basis, viz. : Such company to be charged an amount equal to ten cents per barrel, less an THE DEPENDENCE OF MONOPOLIES. 207 how close the alliance is can be seen in freight classifications and changes therein in order to secure special favors for the monopoly, and by hook and crook to make competi- tors an impossibility. amount equivalent to twenty-five cents per barrel for all oil shipped by Rice, the agreement between you and the company thus being that the charge to be paid by them is a certain sum ascertained by such a calculation. If it is irngracticabjfi so to arrange the business that the Standard Oil Company shall in effect collect the twenty-five cents per barrel from those persons using the company's pipes from the wells to the railroad without its passing into your hands, you may properly, also, deduct from the price to be paid by the company an amount equal to twenty-five cents per barrel upon the oil shipped by such persons, provided your accounts, bills, vouch- ers, etc., are consistent with the real arrangement actual!}' made, you will incur no personal responsibility by carrying out such an arrangement as I suggest. It is possible that by a proper application to the court, some person may prevent you in future from permitting any discrimination. Even if Mr. Rice should compel you subsequently to refund to him the excess charged over the Standard Oil Company, the result would not be a loss to your road, taking into consideration the receipts from the Standard Oil Company, if I understand correctly the figures. There is no theory, however, in my opinion, under the decisions of the Courts, relating to this subject, upon which, for that purpose, an action could be successfully maintained in this instance. Yours truly, EDWARD S. RAPALLO. The Leader, of Marietta, of November 24, 1885, says: Judge Baxter characterized Rapallo's letter " as being the most insolent paper he ever heard presented to a Court. ... It is very clear that these enormous discriminations have been disastrous to the business interests of our city, for the difference in rate against all our independent refiners is so great as to about equal their full profit on oil refined, and so their busi- ness has been nearly destroyed, except that of Mr. Rice, who was driven to save himself by the construction of a pipe-line of his own. " While this is so, the road has not been benefited by the action of the receiver, for the Macksburg pipe-line carries its own oil to Parkers- burg; the road has thus been deprived of the freight, and our city of the successful refining business it should have." 208 ROBLEMS OF TO-DAY. The curious will find the story well told under the title of " A Commercial Crime," in Hudson's " Railways and the Republic." ^ The production pf__cpal furnishes another illustration. This ought not to be a monopoly, but as to anthracite coal it has become such by its connection with railroad com- panies. A group of men interested in mines control the roads, and are thus able to dictate to other operators and rule them with a rod of iron, which renders the trades- union tyranny, of which we hear so much, insignificant in comparison. Men living^ in Maryland know full well that they are not at liberty to pay their men what they will, to mine coal where they will, and in quantities which suit their own convenience. They must do what they are told to do, or suffer financial ruin. A pursuit not a natural monopoly has become an artificial monopoly through an alliance with a business on which it depended, and which is in its own nature a monopoly. It is on_this account that the cojnstitu- tion of Pennsylvania renders it illegal for a railroad to engage in any other lines of business than those connected with transportation. It is an entirely correct policy to de- mand that the railroads shall be held rigidly to their own proper functions, and that they shall serve all alike in order to avoid artificial monopolies. This was also the purpose of the interstate rommerre 1a\v. The aim is correct, but there is no reason to think that the purpose of the Penn- sylvania constitution or the interstate commerce law will be accomplished by present methods. The state consti- tutional plfovision and the federal law are of value as establishing a principle, but that alone is their chief sig- nificance. . There may be rare and exceptional cases in which the THE DEPENDENCE OF MONOPOLIES. 209 tariff alone will enable men to secure a monopoly, but the approved method is to get control of the home market by alliances with natural monopolies, and then to keep foreign competition out by a high-tariff wall. The two go hand in hand. G CHAPTER XXXI. GOVERNMENT BY SPECIAL INTERESTS. OVERNMENT is created to promote the general wel- V_T fare, and when it is used to advance special interests which are not at the same time general interests, it is per- verted from its original purpose. Our federal, state, and local governments are now controlled by men who hold their offices in trust for powerful private parties, and they view public measures, not from the standpoint of the gen- eral public, but from the standpoint of those in whose employ they are. This has been previously mentioned in this series of articles and need not be enlarged upon, for it is sufficiently obvious to those who " have eyes to see." One proof of this is the way in which legislative favors are exchanged. A. promises to support B.'o bill if B., in turn, will vote for some measure which interests A. This occurs "'jdaily, and would of course be an impossibility if A. and B. both voted simply for measures which they regarded as designed to benefit the public. Another evidence of the influence of private interests is seen in the questioji so often asked by legislators of the powerful when they visit ^^/y^the legislative halls, " Well, what can I do for you to-day? " TRe power held as a trust for the people is in return for some bribe, direct or indirect, placed at the disposal of a private person. The lobbies which exist everywhere are a further proof. These are maintained to instruct legislators in regard to private interests and to make it worth while GOVERNMENT BY SPECIAL INTERESTS. 211 for them to help forward some scheme for plundering the people. Again and again have citizens found it an absolute impossibility to secure any attention for measures designed simply to benefit the general public. Legislatures and city councils will not even take time to give them superficial attention. Consequently the practical man does not go in a straightforward manner to any one of our legislative bodies, and say : " I have devised plans for public improve- ments which will be of great benefit to our city, and F desire to explain them to you." On the contrary, he goes to some one who has influence and brings his plans forward in this indirect manner. It took a scandal .ike the Jacob Sharp case to force a bill through the New York legislature, rendering the sale of street-car franchises compulsory ; and when in the legislature it was suggested that charters be limited as to length of time as in Louisiana, the influence of boodle_was too strong. I say this because I hold that there was no lack of knowledge as to correct methods of dealing with the problem. It is simply impossible to find any grounds for unlimited street-car franchises, and had public interests been decisive, the franchises would have been limited in time. We have the fact of government by special interests known to all men. Now what is the cause ? The more carefully I examine the facts of the case, and the more I reflect upon the nature of the problem, the more inclined I feel to agree with those who find a chief cause in the protective tariff. The moment a tax is placed on imported goods, that moment those engaged in its pro- duction at home have an interest in the control of legisla- tion to suit their private ends. It is unavoidable. The temptation to do wrong is absolutely inseparable from pro- tectionism Those who are protected form an association and koep agents at Washington, whose business it is on the PROBLEMS OF TO-DAY. one hand to raise the tariff, on the other to prevent a reduc- tion in the tax on imported commodities. SpecialjDrivate interests are thus created by legislation, and these make free use of money. Assessments are levied on producers of taxed commodities to support a lobby at Washington, and in certain branches of productions manufacturers have come to look upon these assessments as a mere matter of course. The money goes to Washington, and no_account is ever rendered of the mode in which it is expended. Legislators get in the habit of looking for remuneration of some kind for the performance of their legislative functions, and the most unscrupulous use office for what it will bring. There are two ways in which money can be made by legislators. They can receive money for their aid in getting ' through bills in which private parties are interested, and they can bring forward "^unjust bills designed to injure private parties purposely to be bought off. Proper^ bills, designed to guard the public interests, are also frequently brought for- ward, and then a shrewd legislator can obtain credit with the public for his service at the same time that he receives boodle for secretly killing his own bill. There is every reason to believe that such things happen at Albany, but of course not in connection with the tariff. The corruption of state legislatures and municipal councils is the work of those in possession of natural monopolies. The natural monopo- lies must__be__controlled, because it has been demonstrated by actual experience that it is impossible to turn over trans- portation, light, water, and the like to private corporations without regulation. Now the moment regulation begins, a ' diversity of interest between the public and private parties j x is created, and a wide^oor jsppened for corruption. It is easier to see this in a small town. Let us, therefore, again take the case of water-works in two places already GOVERNMENT BY SPECIAL INTERESTS. 213 mentioned. Fredonia. New York, has public works. No Z oj.* corporation exists to corrupt the village -trustees ; no power- ful private interests adverse to those of the general puolic exist. The only_source of corruption is the civil service, and the appointment of one or two officials has never been found to be appreciably demoralizing. Let us leave Fre- donia and go to Jamestown, in New York, where a private water company exists. This company has from the start been engaged in litigation with the city. Now can any one fail to see how this at once introduces a corrupt and debas- ing influence in municipal politics ? What has taken place in Jamestown I will not attempt to say ; but the usual course is for the private corporation first to get control of the press, or a portion of it, then to send men to the council to decide all disputed questions between the corporation and the city in favor of the former, also to effect a repeal of any reserved public rights. The corporations have a tre- mendous a'dvantage because they are uttgrly unscrupulous. Parties are to them merely tools. " In Republican districts I am a Republican, in Democratic districts I am a Democrat," is the assertion of a notorious railroad president. I might name a Western city in which there is reason to believe that the street-car corporations elect every municipal councillor, whether a Democrat or Republican, because in all the wards -i they control both parties. When I used to live in New York City I was in a position to know that nothing was jo_effect- ual in securing employment on the street-car lines as " a political pull," and there is reason to suppose that the same condition of things exists to-day. The street-car conductors and drivers were practically in the employ of politicians, and were a worse cause of demoralization than the same number of municipal employes, as there was not the same opportu- 214 PROBLEMS OF TO-DAY. nity for exposure and improvement in methods of appoint- ments. Both causes jjf corruption and government by special in- terests are something inseparable from present policy. What should Jb_e_done with respect to natural monopolies has al- ready been explained at sufficient length. It may be well to p^ add a word about tariff reform. Let us first examine all the different sorts of protective \/\ ^ f^^ fc " " V/i/*' tariffs which can be defended on rational grounds, thus summing up and completing what has gone before on this topic. A protective tariff is not a good thing in itself. It preve_nts some people from doing what they would like, and thus restricts their liberty. It also causes these people a pecuniary loss, at least for the immediate future ; either they " pay the tax, or the tax is so high that they do not pay it, but purchase other commodities at a higher price than that demanded for trie foreign commodity. Both cases alike require a sacrifice of financial resources. An inferior article may perhaps be purchased at the same price, but this course also entails loss. If neither a foreign nor a domestic commodity is purchased, a sacrifice is still required, because we must suppose that the commodity would sub- serve some purpose. Whichever alternative we take, we find that, for the time being at least, protective tariffs inter- fere with liberty and cause sacrifice. They must then jus- , , tify themselves. They stand on the defensive. The first kind of a protective tariff, which can be de- fended in certain places and at certain times, is what we "' may term an Educational Tariff. The protection of infant industries would fall under this head. The case of infant industries has already been discussed with reference to the United States. If there ever was a time when protective tariffs were justifiable in the United States on account of the GOVERNMENT BY SPECIAL INTERESTS. 215 infancy of our industries, that time has long passed. The practical difficulty connected with the protection of infant industries has already been mentioned. It requires a great deal of wisdom to know how to apply such a tariff, and it requires a remarkable degree of injeflfity - O ne, it is safe to say, never yet found in an American Congres^c- to. lessen the protection gradually and finally to withdraw it altogether. Protective tariffs have a terrible hold on a country when once established. Educational tariffs would include tariffs to pro- tect some lines of industries to which a country might be peculiarly adapted, but for the pursuit of which it might require a certain amount of industrial education. Japan .- may serve as an example. It is conceivable that when such &*~f a country^ first enters upon international trade, the indus- trially backward condition of its people who are at the same time by nature_gifted, and are progressively inclined, may place it at a peculiar disadvantage in pursuits in which it may reasonably hope shortly to excel. A temporary disad- vantage may IHus, it is conceivable, rest on such a country with respect to those pursuits for which it will shortly pos- sess relatively the greatest facilities. It takes time to ac- cumulate capital, to break with old customs, to become familiar with modern methods, and to adopt them as part of the new economic life. The temporary sacrifice of a pro- tective tariff would then be counterbalanced by permanent gain in the future. The only kind of a protective tariff advocated by Fred- crick List, already mentioned as perhaps the ablest of the protectionists, is an educational protective tariff. I am not prepared to say that great as are the difficulties of such a tariff, I would never advocate it under any circumstances. It may. be mentioned incidentally that the art of govern- ment has progressed rapidly during the past fifty years, that 0^^ those countries where laborers work the fewest hours and r _, ^S GOVERNMENT BY SPECIAL INTERESTS. 217 receive the highest wages are most dreaded in international competition. It has been said that German manufacturers require some tempojaxyprotecjtion on account of social changes there going forward. Expensive schemes are there being inaugurated which look to the compulsory insurance of all artisans and mechanics to provide for accident, dis- ability, and nearly all disasters which overtake working people. Part of the costjnust be defrayed by the employ- ers. Granting all the premises, it is_ conceivable that there may be justification for a limited an'"-, moderate protection. Professor Lexis of_Breslau, a careful and scholarly writer, speaks of a tariff of thirty per cent, as the extreme limit of desirable protection. 1 But whatever may be the situation of German manufacturers, there is no ground for advocating a social protective tariff in the United States. Our labor is / * so efficient and our resources are so boundless that employ- ers can still pay current wages and derive larger average " profits from their capital than European competitors. International factory legislation has been suggested as ^ ^ "^ "^^^ "*" preferable to a social protective tariff. It is proposed that the greatjiatipns of the world come .to some common agree- ment respecting the hours of daily toil, or the normal work- ing day; also employers' liability, safeguards against acci- dents, child labor, the labor of women, the education of the masses, workingmen's insurance, and such matters, so that no nation shall be placed at a disadvantage on account of what it does for the laboring classes. Switzerland has, indeed, made propositions looking to international factory legislation to other governments, but these have not met with a warm reception. As between the two, there can be no doubt that international agreement respecting factory 1 See his monograph on Handel in the 2cl edition of Schonberg's * Handbuch der Politischen Oekonomie," Tubingen, 1886. 218 PROBLEMS OF TO-DAY. legislation is preferable to a social protective tariff. But it will be very difficult to bring about such agreement. The third kind of a rational protective tariff we may call i a Military Defence Tariff. If a tariff is required to insure the production of fomgsjabsplutely necessary to the safety of a country in time of/var, and of which it may possibly be deprived by its enemies, it goes without saying that the tariff is rational. The manufacture of powder in Switzer- land is, perhaps, an example. It is conceivable though not probable that Switzerland might, under certain con- x//- ' tingencies, be deprived of the opportunity to obtain powder from foreign nations. If there is even a remote possibility that the supply of arms and ammunition could be cut off, a country might do well to protect the manufacture of these articles by a protective tariff. It will, however, generally, if not always, be more profitable to support government estatj- J lishments for the production of such things, and so to con- trive them that it be possible to increase largely their product at a moment's notice. There never can be any propriety in a military defence protective tariff in the United States. First, it is difficult to see what thing necessary in war would not in our country be produced without a tariff; second, it is inconceivable that a country whose boundaries are twenty-five thousand miles long should be shut off from all intercourse with for- eign nations. It is quite proper and answers all purposes that government should maintain a few navy yards and establishments for the manufacture of things needed in war, and that in ship construction, outside of its own establish- ments, it should make contracts with home producers. A fourth kind of protective tariff we may call a Relief Tariff . t i It is conceivable that on account of the general welfare it may be well to tax the community to bolster up an impor- GOVERNMENT BY SPECIAL INTERESTS. 219 tant special interest, or to prolong a transition period from one sort of industrial life to another, and to mitigate the distress incident to such a period. The only example which occurs to me is that of the landowning and agricul- tural classes of Germany. These are the backbone of the ^ country, . and their economic ruin would involve radical r changes in the political and social character of the nation. * n The competition of_American farmers has produced great distress among the agriculturists and rural land-owners of Germany. - They labor under mortgages and heavy fixed charges, and it is a long and painful operation for them to adjust themselves to a much lower range of .prices for agri- cultural products. Educated and intelligent Germans say that their peculiar condition justifies a moderate protective tariff. Yet there can be no doubt that the taxes thereby im- posed upon the community have produced distress, and tend to retard the development of manufactures by increasing the price of food, and consequently raising wages. A relief tariff will produce more distress than it cures unless it is applied with discretion and moderation. The fifth kind of a rational protective tariff we may, for , ^ lack of a better term, call an Historical Continuity Tariff. v ^ The present depends on the past. We cannot neglect his- torical conditions without harm. Sudden and radical changes ruin important industrial factors. A tariff of a hundred years' duration in the United States cannot be left out of consideration, even if it has given an unnatural and injurious direction in some important instances to capital and labor. A sudden change of policy an introduction to-morrow, for example, of free trade in the United States might increase imports largely and cause a temporary outflow of a part of our supply of precious metals. This might bring about a readjustment of prices and lower prices in the United States 220 PROBLEMS OF TO-DAY. Now while high or low prices in themselves may be a matter of little importance, it is of vast importance whether prices rise or fall. Lower prices would bring about an increase in value of all bunds, mortgages, and fixed obligations; conse- quently would increase public burdens resting on the com- munity, and private burdens resting on all debtors and on all others having fixed payments. This would be most disastrous in its consequences. ^ Free trade would open up to us many foreign markets, and in the end there is reason to believe would increase our suppjy_^f_jqoney as well asj>f other commodities. It would in the end add to our wealth in every respect. But too sudden transitions are dangerous. These are, I conceive, the only kinds of rational protec- tive tariffs, and only the last is applicable to the United States. It is to be noticed that they are all temporary in ^Karacter, and I think no protectionist writer of first-rate ability has ever contemplated protectionism as a permanent policy. Retaliatory Tariffs have been frequently mentioned. Their aim is to force countries to lower or remove commercial restrictions by retaliatory duties. Nothing seems ever to have been gained by such measures. Retaliation is more likely to lead to retaliation in turn by increasing instead of removing restrictions. Retaliatory tariffs are not called for in the United States. The aim of retaliatory tariffs is free trade and not protection. Retaliatory tariffs are measures whereby it is hoped that free trade may become reciprocal, and can be consistently advocated only by those who accept the proposition that free trade is a good thing. The English " fair traders " advocate retaliatory tariffs in order to force other countries to adopt the principles of free trade. It seems clear, however, that the fair trade movement if it should GOVERNMENT BY SPECIAL INTERESTS. 221 ever lead to practical results, of which there is no prospect would injure England, and attain no results whatever in the desired direction. The adoption_of fair trade by Eng- land would certainly strengthen the protectionists in the United States. Even the fair-trade agitation has done that. Tax- Equalizing Tariffs are tariffs laid on goods to coun- terbalance excise or internal revenue taxes, and as they do not change relations between home and foreign producers, are not really protective at all. Did free trade already exist, there is reason to believe that it would be a good thing for the country. We have supe- rior advantages over other countries, and the strongest is not the one to suffer in competition. Farmers and workingmen are the last ones to gain by protection, and I have no doubt that both would gain were trade as free between Europe and America as between our states. However, the fact of the tariff exists, and the fact is of vast importance. Our indus- tries have grown up under it for over seventy years, and have become more or less adjusted to an artificial state of things. Good faith requires that we should in dealing with manufacturers bear this fact in mind, and move carefully in readjusting trade relations. This is not saying that we should do nothing, but simply that rash, hasty movement should be_ avoided. No one has received any pledge that tariff laws would not be changed, yet it seems only fair that those who have relied upon a traditional policy should have a little time in which to adjust themselves to a new state of things. While it is true that the fears entertained in many quarters in regard to the effects of even radical tariff reform are greatly_xaggerated, there can be no doubt-that immedi- ate free trade would ruin a good many manufacturers. Now our industrial life has become an organisjo, and you cannot injure one member without injuring the entire body. This 222 PROBLEMS OF TO-DAY. is well established. Industrial shocks are propagated. An injury to manufacturers may involve banks, these in turn the farmers, and so on indefinitely. I ndustrial organism is extremely sensitive, and displacements of labor and capital are attended with a great deal of pain. Farmers have nothing whatever to hope from protection, and as_a step towards tariff reform free raw materials will be ^kely to benefit the general public and to produce no indus- > , ' trial shock. Free_raw materiajjahould be accompanied by r correspondingly lower duties, or even by duties a little more than proportionately lower. Whenever any article is placed on the free list, it is a clear gain, and one temptation to gov- ernment by speciaj_jnterests is removed. A steady, per sistent effort should be made to tax asfewjhings as possi- ble, as thus interference with tracfe and temptation to cor- ruption will be reduced. A fruitful source of fraud and , injustice as between various ports is caused by difficulties ^/ 'attending valuations. It is desirable" to simplify adminis- /Tu-ation by~substituting in every practicable case specific for ad valorem duties. PART II THE NEEDS OF THE CITY. INTRODUCTORY NOTE. THIS address was delivered at the General Christian Con- ference, held under the auspices and direction of the Evangelical Alliance of the United States, at Boston, Dec. 4, 1889. Another address was announced by the secretary of the Alliance, Rev. Josiah Strong, D.D., and a discussion was also advertised. On this account I attempted to present one line of thought chiefly, leaving other aspects of the ques- tion for other speakers. Had this address been intended to stand by itself, it might have been necessary to enlarge on individual work, considered in itself and in its relation to public work. I speak of the importance of the work of the Earl of Shaftesbury as a legislator : years of hard private work on his part, and on the part of many others, were re- quired, to make his legislative reforms a possibility. While "legislation often lags behind its possibilities, it is likewise true that it sometimes is in advance of public sentiment, and that it consequently is ineffective. There is plenty of work to do ; and no one need feel dis- couraged because he cannot enter a state legislature, or Con- gress. Every good influence exerted on any human being helps to render all other good work more successful. Yet in certain classes of the community, and those, the most 228 INTRODUCTORY NOTE. influential, the truths which I tried to impress on my audi- ence need emphasis at the present time. When all qualifi- cations are made, it remains true that no power for good equals that of good government. I was reading an account of the work of the Salvation Army, in saving fallen women, in the slums of cities, when the thought occurred to me, Here is, after all, highly beneficial work of a purely private and individual character ; but reading further in Mrs. Booth's book, " Beneath Two Flags," I came to these words in re- gard to the " Rescue Homes " for fallen women : " Of the thirteen homes, in different foreign lands, those in Australia are the most prosperous. This can be attributed largely to the appreciative government support they receive. The Vic- torian government had even made a grant to the Melbourne Home." The addresses delivered at the General Christian Confer- ence are all to be published for the Evangelical Alliance, by the Baker & Taylor Company ; and my thanks are due to the Alliance for permission to print the paper in this place. RICHARD T. ELY. THE NEEDS OF THE CITY. WORKING in East London there are two devoted city missionaries, Rev. Samuel A. Barnett, and his wife, Mrs._Henrietta O- Tforneft. Mr. Barnett is rector of St. Jude's Church ; and he and his wife have been faithfully toiling among the masses, for their material, moral, intel- lectual, and spiritual uplifting, for fifteen years. During this time they have gained a vast fund of information respecting the needs of the city and the appropriate means for satisfy- ing these needs ; and a part of this fund of information they LITERATURE. Practicable Socialism, by SAMUEL A. and HENRIETTA O. BARNETT. London: Longmans, Green, & Co.; New York, 15 East i6th Street. 1888. FREMANTLE'S The World as the Subject of Redemption. Bampton Lectures, 1883. New York : E. & J. B. Young & Co., Cooper Union, Fourth Avenue. 1885. ALBERT SHAW'S Municipal Government in England, published as one of the "Notes" issued in connection with the Johns Hopkins Uni- versity Studies in History and Political Science. Baltimore, 1888. Also his forthcoming Century article on Glasgow. Also his forth- coming book on Et4.ropean Municipal Government. BRACE'S Dangerous Classes in New York. New York: Wynkoop Hallenbeck, 113 Fulton Street, New York. 1872. I wealth has gained for the few. The nationalizatioji_ja. lux- urymust_be_the jojbjeqt of social je form. " - Page 65. . " The conversion of sinners, at any rate, while the sin- ners are sought chiefly among the poor, the emigration of children, the spread of thrift and temperance among the work people, will still leave families occupying single rooms, and the sons of men the joyless slaves of work. a state of .ociety for which no defence can be made."-- Page 65. " Societies which absorb much wealth, and which relieve their subscribers of their responsibility, are failing ; it re- mains only to adopt the principle of the education act, of the poor law, and of other socialistic legislation, and call on society to do what societies fail to do. There is much which may be urged in favor of such a course. It is only society or, to use the title by which society expresses itself in towns, it is only town councils (i.e. city councils) which can cover all the groundTand see that each locality gets egual treatment. It is by common action that a healthy spirit becomes common ; and the tonj^ojLjrubhc^ opinion may be mqre_healthy when the town council engages in good doing than when good doing is the monopoly of individuals or of societies. If nations have been ennobled by wars undertaken \\ against an enemy, towns may be ennobled by work under- \faken against the evils of poverty" Page 66. THE NEEDS OF THE CITY. 231 "Some way must be found which, without pauperizing, without affecting the spirit of energy and independence, shall give to the inhabitants of our great towns the surroundings which will increase joy and develop life." Page 67. " The first practical work is to rouse the town councils to the sense of their powers ; to make them feel that their reason of being is nqtjxjlitical, but social ; that their duty ** is not to_p_rotect the pockets of the rich, but to save the people. The care of the people is the care of the com- munity, and not of any philanthropic section." Page 72. "Thepeopje, not politics, must be our cry," says Mr. Barnett. "As a rule, it may be laid down that the voluntary work I is most effective when it is in connection with official work." | Page 73. I have finished my quotations, and I have no apology to make for their length. They are worthy of the most careful study. WHAT ARE THE NEEDS OF THE CITY? i. First of all, I would mention this need, a profound revival of religion ; not in any narrow or technical sense, but, in the broadest, largest, fullest sense, a great religious awakening which shall shake things, going down into the depths of men's lives and modifying their character. The city needs religion, and without religion the salvation of the city is impossible. All successful workers among the masses say we need religion, and yet this is almost invariably, I think accompanied by a p_role.st. I join this protest. You re- member words which ' I have read to you from the book, "Practicable Socialism": "The conversion of sinners at 232 PROBLEMS OF TO-DAY. any rate, while the sinners are sought chiefly among the poor will still leave families occupying single rooms, and the sons of men the joyless slaves of work, a state of society for which no defence can be made." I ask your attention, also, t to these words, taken from Mr. Brace's " Dangerous Classes it, gf N pw V-lr " : "In religious communities, such as the English and American, there is too great a confidence in technical religious means. The mistake we refer to is a toe great use of, or confidence in, the old technical methods, Vsuch as distributing tracts, and holding prayer-meetings, and scattering Bibles. "The neglected and ruffian classes . . . are in no way affected directly by such influences as these." You all know Mr. Brace, the head and heart of that mag- nificent movement in New York represented by the Chil- dren's Aid Society, and you all know how religious his worjcjs. You will get a hint of what is wanted in my first quotation from Mr. Barnett, " The social reformer must go alongside the Christian missionary, if he be not himself the Christian missionary." You may read of a remarkable religious awakening in the fifteenth and sixteenth centuries, under the influence of which great leaders were unable to separate religion and politics. It is this kind of a religious awakening which our modern city needs. What must be the direction of this religious reform? It must infuse a religious spirit into every department of politi- cal* life, and, with Canon Fremantle, recognize the nation itself as the truest developjnent of the Church, and " the attempt to establish the political and social relations on a ..religious basis " as " the most divine work given to man." l J(r 1 "The World as the Subject of Redemption," page 208, A ' \. THE NEEDS OF THE CITY. 233 2. This leads me to remark that the second great need of the city which is the first need re-stated from a different point of view is a renaissance of nationalism, or, if you ftj^j^ will, to narrow it down to our present theme, municipal- ism. Government is the God-given agency through which we, must work. To many, I am aware, this is not a welcome word ; but it is a true word. We may twist and turn as long as we please, but we are bound to come back to a recognition of this truth. Societies have failed. Societies, particularly as organized in city councils or city govern- ments, to adopt what is, with us, the more comprehen- sive designation, must recognize the work we want done as the concern of the community, and must themselves do it. The most successful work, says Barnett, after his long ,p striving, is done by the Education Act, the Po^r_Iaw, and other socialistic legislation. That that is the most success- ful work is also illustrated by the life and career of the sev- A* enth Earl of Shaftesbury, who carried through Parliament legislation which has benefited millions of Englishmen. If simply by touching a person you could confer a distinct benefit on the person touched, it would take you twenty years to benefit as many people as have been benefited by legislation chiefly due to this great philanthropist. Also the experience of Elberfeld, Berlin, and other German towns so celebrated for the administration of charity, confirms what is here said. Their success is due to private co-operation with official_work. " If nations have been ennobled by wars undertaken against an enemy, towns may be ennobled by work undertaken against the evils of poverty." Societies have failed, and will fail. They cannot, acting simply as societies, do the work. Their resources_ar_e inade- quate, the territory they can cover is too small, and their power is insufficient. The Evangelical Alliance, simply as 234 PROBLEMS OF TO-DAY. such, can never do the work. The Eyangelical Alliancej like other societies, must put itself beXind municipal gov- ernment, and recognize the reform and elevation of muni- cipal government as one of the chief features of its work. It must strive to establish among us true cities of God. There is plenty of room for the individual, and for indi- vidual activity. Not all the work can be done by govern- ment, although without government very little can be accomplished. But in addition to strictly private work, there is room for any amount of individual work in stimu- lating official work and in co-operation with official work. We must recognize this ; and the sooner we recognize it, the better. This doctrine was long resisted in the matter of popular education, but now its recognition in this depart- ment of life is universal. In all the world's history we have never had anything like universal education, save when and where government has furnished it. How long and ardu- ously have people with us (and more arduously and still longer in England) tried with private means to educate the people, and how ineffectually ! But when your Horace Mann comes forward, and convinces the people that " voluntary work is most effective when it is in connection with official work," then, indeed, the people's cause moves forward. We need to-day in our cities new men to arise and to' preach this doctrine with the apostolic zeal of Horace Mann. Not more private schools are needed, but the better maintenance of such as^exist, and otherwise the use of private means to stimulate public endeavor. This is, I am happy to say, being done to some extent. As I understand it, this is what the trustees of the Peabody and Slater Funds are most wisely trying to do. It takes a great effort, and persistent, unflagging zeal, to keep alive a few industrial schools like those which Mr. THE NEEDS OF THE CITY. 235 Brace has established in New York. He has my admiration, for his great work ; but I cannot help asking the question, If a little more energy had been used in stimulating public authorities and co-operating with them, would not greater things have been accomplished? Shameful, incredibly dis- graceful, as it may be to the authorities of New York City, , . fourteen thousand children in that city were this fall turned from the doors of the public schools because there was not ( room for them. Now, with two hundred children to a school, ' it would take seventy private schools to educate these chil- f ,' dren ; whereas the energy and zeal necessary to support ten such_sch,ools, expended in enlightening the public and stim- ulating the conscience of the municipal authorities, would have rendered this criminal record an impossibility. Mr. Jacob A. Riis has written an article on the tenement , ^ house population of New York, which appeared in Scribner's Magazine for December, 1889. It is called, " How the Other HalfJUvjes," and is a noteworthy article. One passage in it shows the ineffectiveness of private work dissociated from official work or inadequately supported by legislation and / c * administration. It is as follows : " The ten-cent lodging houses more than counterbalance the good done by the free reading room, lectuies, and all other agencies of reform. Such lodging houses have caused more destitution, more beggary and crime, than any other agency I know of." Mr. Riis quotes this from one of the justices on the Police Court bench. Now, these lodging houses can never in the world be abolished by private effort. Insufficient as it has been, pubUc authority, I believe, has already done more to improve \T'v\^r- the dwellings of the poor than all private agencies combined, itvcvi But we want a co-operation of both. "The first practical work is to rouse the town councils to the sense of their K^-,^0 powers ; to make them feel that their duty is not to pro- 236 PROBLEMS OF TO-DAY. tect the pockets of the rich [by reducing taxes and turning children away from public schools, as in New York], but to save_the people." And " the care of the people is the care of the community, and not of any philanthropic section." Time is short, and things, even at the risk of misunder- standing, must be passed over briefly. We need, then, two things, religion and nationalism. Put these together, and we have religious nationalism. But is this not Christian socialism? Yes, it is, in a certain sense ; ,>Mirid I rejoice in the growth here in Boston, I may say frankly, of nationalism and Christian socialism. It is not that I accept all the principles of those who support these move- ments. I must, with equal frankness, say that I can only go part way with them ; for I think they go too far. I do think, however, and I do not hesitate to say that I think, that to-day they_arg the leaven which is needed in Ameri- can society ; and as I fear nothing from those doctrines of theirs which strike me as extreme, I rejoice in their activity. Christian socialism if you will take it in my conservative sense is what I think we need ; that is, religion coupled with true nationalism. An objection. may be raised here, on account of the poor -\ character of our government^ of ^cities. Qf course our gov- ernments are poor. Why should they not be? We have /^ done everything to make them so. We have been taught to turn away from government for the accomplishment of busi- ness purposes and for social improvement. We have been trying to reduce government to a contemptible insignificance, and, in many cases, have succeeded in reducing it to con- temptible impotence. Lest men should do some wrong thing, vwe have made it impossible for them to do any good thing. We have succeeded in turning the energy and talent of the community, for the most part, away from public life, and THE NEEDS OF THE CITY. 237 diverted the great bulk of talent and energy into private life. We have reaped the legitimate fruits that might have been expected one is tempted to say, which have been deserved. Government never, in the world's history, has been made good_government by the application of the maxim, " That is the best government that governs least." It never will be made good by reducing it to insignificance. It is, as a matter of fact, the opposite policy which has made good government, whenever and wherever good government has existed. You have read about the cathedraUbjjildjng, four, five, and six hundred years ago. How could our ancestors in those times, in some respects so rude, accomplish such matchless marvels in cathedral-building ? Simply by putting their souls into the work. Similarly, when we put some portion of our intellectual and spiritual resources into the duties of govern- ment, recognizing the nation as church, we shall have good government. We are considering the needs of the city. But this means an increasing proportion of the population ; and on the whole, I think we may jejoice that it does mean an ever-increasing proportion of the population. The statistics of the increasing urban population throughout the civilized world have often been presented. We all know that one hundred years ago a thirtieth of the population of our country lived in cities, that now one-fourth lives in cities, and that presently half of our population will be urban. This movement is jneyitable. It is not due, as some think, in any considerable degree to the inclinations and desires of the people, but it is due to an economicJbrce which is well-nigh as irresistible as the move- ments of the tide. Let us cherish no Utopian schemes of turning people back to the rural districts. Every new good 238 PROBLEMS OF TO-DAY. road, every new canal, every new railway, every new inven- tion, every economic improvement, in short, jiearly all industrial progress, centralizes the population in cities. It is, on the whole, good, because man finds his welfare in " association with his fellows : by nature, as Aristotle says, he is a sojaaJL-hfiipg ; and city life makes a higher degree of association possible. This means progress of all kinds, if we are but equal to the increasing strains city life puts upon our civilization. But what do we want for this increasing urban population ? . (( Let us again come back to this question. Barnett states our problem in these words : " Some^ way must be found which, without pauperizing, without affecting the spirit_of energy and independence, shall give to the inhabitants of our great towns the surroundings which will increase joy and develop life." Some one may here interpose this objection, " I thought we were talking about religious reform ? " So we are. But do you notice these words, " Increase joy and develop life " ? What is all sin but lack of life ? Do you remember the words of Christ, how he said he came to bring us life ; how, in one place, he said he came that we might have life, and have it more abundantly; and how he constantly spoke of his highest, all-inclusive gift as " life eternal " ? Yes, we are speaking about religious reform, and all reform must become religious reform. You remember these words of an Italian statesman, " Every political question is becoming a social question, and every social question a religious question." Tract distribution and revivals, in the narrow sense, are not enough : environment must be changed. All social and sta- tistical science, teaches this ; and every rational man practi- cally acknowledges it in his own conduct, especially when his own family is concerned. It is only in theoretical dis- THE NEEDS OF THE CITY. 239 putation that any one will deny it. Read Mr. Brace's book, and see its tremendous importance; see how a change 01 environment saved all except four out of two thousand chil- dren and young persons, the vast majority of whom were, in their old environment, inevitably doomed to perdition. Listen carefully to these words, written by Mr. Brace him- ! self : " Few girls can grow up to maturity in such dens as ' exist in the first, sixth, eleventh, and seventeenth wards and be virtuous ; few boys can have such places as homes, and not be thieves and vagabonds. In such places typhus and chol- era will always be rife, and the death rate will reach its most terrible maximum. While the poorest population dwell in these cellars and crowded attics, neither Sunday-schools nor churches nor charities can accomplish a thorough reform." Read the results of the investigations of the ablest statis- ticians about regularly recurring crime and wrongdoing, and ask yourself, How can all this be changed except through changed environment? This changed environment must pre- cede or accompany or, at any rate, closely follow exhor- tation and other individual treatment. We are told that the nationalization of luxury is required ; let us say again, if you will, the municipalization of luxury. Luxury is here used in a good sense, as equivalent of means of abundance of life, like libraries, museums, and art gal- leries. Let us go into details regarding the needs Of the city ; and here, on account of the time-limit, I must confine my- self to remarks which will be but a little more than the enu- meration of items. You may place in connection with each item, " Church Work." If I say education, then I point out work for the church, and consequently for the Evangelical Alliance, a work in bringing about the best education, and infusing into it the right spirit. 240 PROBLEMS OF TO-DAY. ENUMERATION OF THINGS NEEDED BY THE CITY. i. Let me first mention the means of education, which should be liberally provided, and--"^hich should, for the most part, be gratuitously offered/ I do not speak simply of schools of the lower grades, but of schools of all grades, and of much besides schools. I would thus broaden the way to success, and utilize all talent in the community. With these schools I would establish a sifting process, so that only the more gifted should advance to higher grades. Such a scheme has already been working in New York state for some time. There are state scholarships, entitling the recipients to free tuition in Cornell University, and one of them is offered for competition, in each assembly district, each year. There are thus over five hundred all told. It may be that the ideal thing is a public educational system, j^j comprising all grades of school up to, and inclusive of, the university, That I will not discuss. It seems, however, that ; in a state like Massachusetts, the proper course is, by means , of such scholarships, to connect the public schools with your academies, colleges, and universities, institutions like Am- herst College, Clark and Harvard Universities, which are private foundations. I think a beginning has already been made in the Massachusetts Institute of Technology. But public education does not begin early enough for the needs of the city. The majority of children in cities are under bad home influences, and free kindergartens should be a part of the school system. It is all very_well to talk about the work of the family, but what about the majority of children in large cities, for whom no wholesome family life exists ? I have sometimes feared that my good friend Dr. Dike favored reactionary elements, in not taking into account sufficiently the actual situation. Industrial training ought to be made THE NEEDS OF THE CITY, 241 important everywhere, and I note with satisfaction the prog- ress it is making in Boston. Mr. Brace speaks of indus- trial schools as the best agency for reforming the worst class of children in cities ; and the experience of the Elmira Re- formatory in New York shows that a majority, even of young convicted criminals^ can be reformed by it, when coupled with good discipline. We find that many criminals and paupers are uneducated, and untrained in any trade. The apprenticeship system is antiquated, and city dwellings furnish no opportunity for girls to learn womanly occupations. Prep- aration for life must, for all, come from the school ; for the many, it is the only place whence it can come. But our educational system should not cease to provide for people when they leave school. Education ought to end only with life. This brings me to mention such educational facilities as free libraries, free reading rooms, within con- venient distance of every part of the city perhaps, in many cases, attached to schoolhouses, and open after school hours. University-extension lectures ought to be provided ; and Mr. Dewey, of New York, has been working on some large plans for extension lectures to be connected with the public schools of New York state, and to be conducted under the auspices of the Board of Regents. Private undertakings like Chautauqua could well supplement whatever public authority does. Schoolhouses should be better utilized_as_gathering places ^/ for clubs, debating societies, and all bodies of men who would give guarantee of proper behavior. Open in the evening, they would help to counteract the baleful influ- ences of the saloon. 1 Art galleries and museums which may multiply the value 1 See Barnett, pages 70 and 71. 242 PROBLEMS OF TO-DAY. of pictures and other enjoyable articles a hundredfold, by rendering them accessible to all may be mentioned under this general head ; and in my opinion they ought all to be open on Sunday. I do not believe in leaving a free field to the devil every seventh day. It goes without the saying that religious education is an important j>art of all education and that the church should become more active than ever, and become to a greater extent than at present, a real people's church. Church build- ings also are not as fully utilized as they might be. , 2. As a second item and one closely connected, I mention . play-grounds, paradegrounds, play-rooms and gyrnnasiums. I would include universal military drill for boys and young men. Experienced educators will tell you what a remarkable agency physical drill is for the cultivation of good morals ; half of the wrong-doings of young rascals in cities is due to the fact that they have no innocent outlet for their animal spirits. 3. The third item is free public baths and public wash- houses, like those" which in Glasgow have proved so successful. 1 4. The fourth item is public gardens and pjyrks_and,Ood open-air music. 5. Very important in all large cities is an improvement of artisans' dwellings, and the housing of the poor generally. All those who work among the poor speak about the great obstacle to reform and improvement found in rent. Mr. Barnett speaks of it as absorbing a large proportion of the earnings of artisans, namely, the fourth of a regular income (pages 68 and 70), and Mr. Brace (page 223) speaks of it 1 See Shaw's " Municipal Socialism " in Juridical Review, January, THE NEEDS OF THE CITY. 243 repeatedly. A lady working in connection with the Charity organization of Baltimore spoke of it thus a few days since in conversation : " Rent, oh that is the_dreadful thing ! the rent of the poor just goes on increasing all the time. So do their appetites, but these have to wait while the rent has to be paid ! " I cannot speak of the manyjhings which can be done and which are being done to improve the housing of the poorer urban classes. One of the most promising reforms, it seems ^7 to me, is to obey the law and assess all unimproved city land up to its full value T the very last dqllar of its valu,e. and then7 f exempt all new dwellings from taxation for a period of five years. A somewhat similar plan appears to have produced excellent results in Vienna. Of course, this alone is not sufficient. 6. My sixth item is complete municipalization of markets and slaughter houses, rendering food inspection easier and more thorough. 7. The seventh item is organized medical relief, render- . ing medical attendance and medicines accessible to the poor '&*>, < without a sacrifice of self-respect and independence. Inter- esting details may be. read in Barnett's book. I think the Johns Hopkins Hospital in Baltimore is likely to contribute something to the solution of this problem. 8. Poor relief ought to be better organized, almshouses should be workhouses and workhouses should be industrial schools. We may consider in this connection an extension of public and private pensions, and I was glad recently to notice remarks on this subject by President Eliot of Harvard University. Any one may witness in Germany the beneficial effects of an extensive pension system.- It is a great economy of resources, as smaller salaries are sufficient under a pension system ; it diminishes poverty and pauperism, and thus re- lieves the public treasuries. It prevents anxiety, an 1 checks 244 PROBLEMS OF TO-DAY. the greed begotten of uncertainty. An extension of the principle of insurance is desirable for similar reasons. 9. The ninth item is improved sanitary legislation and F administration. Great strides have already been made in this direction, but probably the urban death-rate among children of the poor, under five years of age, ccjuld still be reduced one-half. 1 10. The next item is a better regulation of the liquor traf- fic where jts s_uppresipjqJs,_ impossible. I think something better than high license is practicable, and I have worked out a system, which I have called modified prohibition, and I must be allowed on account of lack of time to refer you to my treatment of this subject in my book : " Taxation in American States and Cities." I would include local option in wards and full payment for every privilege to sell intoxi- cating beverages. To limit jhe number of saloons, as in Boston, Pittsburgh and elsewhere, and then to give licenses for^ajixed sum, is a crying injustice to all who are refused licenses. Such licenseS^sTiould be sold at auction. But temperance reform ought to include positive measures, as well as negative, and how effective positive measures are, Mr. Brace's book amply demonstrates. The use of town halls and schoolrooms for political and other gatherings in England, has proved a good temperance measure. Do not simply drive out the saloon ; replace it. 1 1 . Municipal savings banks. Such institutions have pro- duced most gratifying results in many German cities. De- posits should be invested in city bonds, and other good securities. The investment in city bonds would tend to give depositors a realizing sense of what they have at stake in municipal government. 1 See Barnett, pages 68-70. THE NEEDS OF THE CITY. 245 12. Ownershi_and_management by the city of natural ^ monojDolies of a local character, like electric lights, gas works, street-car lines, docks, etc. Read Dr. Shaw on the ^, excellent results accomplished elsewhere, notably in Glasgow, by this policy. I will not enumerate further items in this connection. I have already said that the individual force and energy of citizens should be used to inaugurate and carry out these reforms. I would utilize in a higher degree than heretofore the help of womjen. Police matrons have done something ^^MM*i^^B^w^ for one class of our urban population in several American cities, and in Glasgow lady health inspectors have proved an efficient adjunct to the health department. Lady mem- bers of school boards have done good service in several cities. We should also have private associations of women to insist on the enforcement of law. Something has been done in New York by " The Ladies' Health Protective Association," which aims to secure enforcement of sanitary legislation and to insist on a proper street-cleaning service. We ought also to have in every city ladies' public educational associations, to stimulate the educational authorities and to see that the last letter of the law is obeyed ; in New York, for instance, see that schoolhouses are provided for all children and that the compulsory educational law is enforced. We should also have business men's associations, clergy- men's associations, and the like, all to help to make the life of public servants who neglect their duty a burden to them. RESOURCES FOR THESE REFORMS. Whence shall come the resources for these reforms? I have already given the answer. A moderate and conserva- 246 PROBLEMS OF TO-DAY. tive nationalism will provide resources. It is simply neces- sary to utilize_rjublic resources. Comptroller Myers of New ' York recently said that he could pay all the expenses of the city government from dock rents, miscellaneous receipts, and the annual value of street-car and other similar fran- chises. Berlin pays over fifteen per cent, of its expenses from the profits of gas works ; Richmond, Va., when I last looked at the report, about seven per cent. We have also electric lighting as a source of revenue. Then we have plans, which 1 have elsewhere described, for securing a por- tion of the incretnent in value of city real estate for the pub- lic, and that without depriving any one of his property rights. Inheritances, and particularly collateral inheritances, may be taxed, and intestate collateral inheritances might be even abolished. Resources for every needed reform can be found in abundance whenever any honest search is made for them. We have yet no adequate idea of the public resources of a great city. As I began with quotations from Mr. Barnett, so I will close with a quotation from one of his essays. It is this : " I can conceive a great change in the condition of the peo- ple, worked out in our own generation without any revolution or break with the past. With wages at their present rate, I can yet imagine the houses made strong and healthy, education and public baths made free, and the possibility of investing in land made easy. I can imagine that, without increase of their private wealth, the pQor might have in libra- ries, music halls, and flower gardens, that on which wealth is spent. I can imagine the youth of the nation made strong by means of fresh air and the doctor's care, the aged made restful by means of honorable pensions. I can imagine the church as the people's church, its buildings, the halls where they are taught by their chosen leaders, the meeting places THE NEEDS OF THE CITY. 247 where they learn the secret of union and brotherly love, the houses of prayer, where, in the presence of the Best, they lift themselves into the higher life of duty and devotion to right. All this I can imagine because it is practicable." NATURAL MONOPOLIES AND LOCAL TAXATION. NATURAL MONOPOLIES AND LOCAL TAXATION. AN ADDRESS DELIVERED BEFORE THE BOSTON MERCHANTS' ASSOCIATION, JAN. 8, 1889. Gentlemen of the Boston Merchants' Association and their Friends : THE general subject for consideration this evening has been announced as "Combinations and Competition," and a large subject it is. The subject itself savors of monop- oly ; for it is often said of a monopolist, " He wants the earth." I think that is what the Boston Merchants' Asso- ciation wants ! Surely, industrially speaking, " combinations and competition include the whole earth " ; and after we have finished this evening, no economic or social topic will be left for discussion at a banquet to be held elsewhere, or at any future banquet to be held in Boston ! Such remorseless monopolists are we ! We have, so far as political economy is concerned, grasped the entire earth, perhaps the entire universe ! Speaking seriously, the topic assigned to me, " Natural Monopolies and Local Taxation," although only one aspect of our subject, is so large that I must necessarily leave much unsaid which is essential to a full comprehension of the position I take on these matters ; and I wish you to regard my address rather as suggestive than exhaustive. I give you an outline sketch, and I beg you to trust that if filled in, it would be satisfactorily done. I shall try to speak plainly, and so as to avoid any reasonable ground for mis- understanding. except for those malignant natures who want 252 PROBLEMS OF TO-DAY. to misunderstand, and I am very sure that none such are present this evening. One word more by way of introduction. I say I shall speak plainly. There may be those here who would lose by reform in municipal life. Every reform hurts large numbers, ^and among them many good people. But what are we to . p do? To stand still and do nothing is impossible. As a jfi political economist it is my duty to find out what will bene- fit the people as a whole ; to " hew to the line, let the chips fall where they may." I notice everybody seems willing to discuss fairly every abuse except that particular one on which he_fattens at the expense of the public. Thus the president of an electric lighting company does not want to hear municipal public works discussed, but is quite willing to listen to disquisitions p ^Ax>n the iniquity of protective tariffs. I have a concrete in- \jj> stance in mind. The protected manufacturer is willing to \ be shown that public electric lights and gas works are better than private enterprise, but would rather not hear too much about free trade. Now, the truth is that the only way to do is, in every instance, to look aside from private interests and to endeavor to ascertain what is for the public good, assured that in this way we shall all, in the long run, fare best. This /* \ \y is what I seek to do ; and I. tryjiotjto spare myself. In fact, /\r as a member of the Maryland Tax Commission, I have made recommendations in regard to taxation in Baltimore and Maryland which would treble my own taxes. I say frankly I am one of those not paying their fair share of taxes. So electric lights and gas works must be considered from the standpoint of public welfare : we have no right to tax the many for the sake of the few. I appear before you as an advocate of monopoly in certain quarters of the industrial field ; as one, then, who rejoices NATURAL MONOPOLIES. 253 in the progress which, in these quarters, monopoly is making, ^ / and as one who would gladly see this progress accelerated. Mi But I oppose private monopolies. What I favor is the man- &***& agement of certain monopolies by public authorities, and in rw* the interests oT the public. Monopolies are the field for public activity : competitive ' pursuits are the field for private activity. It is thus that I draw the line ; and it is, as I hold, clearly and sharply drawn. It is curious to notice the rapid springs * which some economists are making in these days of combi- jt nations. Some of them, indeed, are performing somersaults in a manner worthy of professional acrobats. Among econ- omists I find myself surrounded by socialists ; and the most thorough-going socialists were but yesterday extreme indi- vidualists, who told us that the free play of natural forces as seen In universal competition was beneficent. The length to which people went in favor of competition, at all times and in all places, is illustrated by the attitude of some members of the municipal council of Augusta, Ga., a few years ago. The question arose whether a charter should be granted to a newgascornpany ; and when it was urged that it would A* ~+- bring about no reduction in prices, and accomplish no useful purpose, they still wanted to give the charter, simply for the ardor with which they loved the principle of competition. Fortunately, hpwever, they were^ convinced that^attempted o*^" competition would do positive harm, and wiser counsels pre- \- ^^is vailed. I say I find myself surrounded by socialists when I am among economists. By that I mean I find myself among those who appjove of all combinations and trusts ; and it is, of course, only, necessary for combinations to go forward, to bring us to pure_socialism. Every socialist knows this, and rejoicesjri trusts. Take up Laurence Gronlund's " Danton in the French Revolution," and you will find this idea clearly 254 PROBLEMS OF TO-DAY. brought out. Take up the last number of the New Haven Workmen^_Advocate, and you will find combinations spoken of as an encouraging sign of the times. These are words from an editorial : " Centralization (i.e. in business) is more and more recognized as necessary for order and economy. Progress in this." One of the ablest political economists in the country told me, a few days since, that, in conversation with a socialist, this socialist said : " Every time I hear of a new trust, I feel like throwing up my hat and shouting ' hurrah ! ' " And the political economist added : " If I were a socialist, I would say to our industrial leaders, ' Keep right on, gentlemen. You are realizing for me my dreams. It is now only necessary for me to fold my hands.' " Socialism means a universal^ trust. Centralize all business in a trust, and then it is only necessary to put a representative of the peoj)le_in control to have socialism, pure and simple. Now, all this I oppose ; therefore 1 see mysell becoming in public opinion so far as public opinion deigns to take any notice of me more conservative with every day, although I have not changed. A few_years ago I was regarded as a radical of course I always claimed that I was a conservative ; bjut I fear that if this change in my fellow- economists con- i, in a few years more I shall be called an old fogy. There can be no doubt, gentlemen, that people, have been staggered by the industrial phenomena of the past few years, and many do not know what to think about the fundamental principles of our social order. This was illustrated, in a manner both amusing and I think I may say pathetic, in Baltimore a couple of years since. It was a great blow to our people to see the Baltimore and Ohio Telegraph swal- lowed up by the Western Union. Its officers had been pro- testing vigorously, year in and year out, in ""season and out of season, that ~such a thing would never happen. But the NATURAL MONOPOLIES, 255 Baltimoreans had scarcely_recgvered from that shock when they received another blow, in the consolidation oLthe, gas companies, which likewise had assured us that the would do that wicked thing assured us most solemnly. And among those who gave us these assurances were solid business men and most respectable church members. There are two causes for the confusion of thought and perplexity of the public mind. 1. Most people have looked upon the form of society which we see all about us as something natural and un- changeable. Now, the truth is, that our social and indus- ( yt '*j trial order is but of yesterday, and those things most familiar to us were entirely unknown to our forefathers a hundred years ago. I could give hundreds of illustrations. Free ^ labor over our entire country, the free sale and purchase of land, that didjiot exist everywhere, even in Massachu- setts, two hundred years ago, and in many other parts of the ^ X, world it is not a century old, the banking business, one hundred years ago there were but three_^banks in the coun- try, free competition as a fundamental principle : all these are new. So also telegraphs, telejghones, railroads, street- car lines, great manufacturing corporations, etc., etc. Even great public debts, and taxation itself as we know i',, are scarce two hundred years old. I do not mean that taxes did not exist in earlier ages ; but they were, in important particulars, different from modern taxation. It is not, there- fore, incorrect to speak of modern taxation as a new thing. A stationary_condition of society is something the world has never seen. The law is, either progress or decline never a stationary Condition. We make a mistake in supposing our present industrial forms final. 2. We have failed to discriminate between different Jdnds of industries. It has been recognized that competition is in 256 PROBLEMS OF TO-DAY. many places a^ood thing and has accomplished marvels. The conclusion is drawn that it. must everywhere and at all times be a good thing. But this is a _great mistake. It is not everywhere possible, and an attempt to apply it in quarters where it is not possible results only in disaster. We observe these phenomena : While competition is increasing in inten- sity in some parts of the economic field it is decreasing steadily in others ; and as the pressure of competition steadily increases, an ever-increasing number withdraw themselves from its influence. Competition is a good thing where it is possible, but there are certain pursuits which are monopolies in their own nature. They are liable to injury_by ; industrial war, but they_are not controlled by competition. Let me explain what I mean. Industrial war is one thing, industrial competition is another. Industrial war is a fierce assault pf one enterprise on another. Industrial competition is a steady pressure, compelling those under its influence to render valuable service for valuable re- turns. Industrial_war seeks to destroy an enemy and always has in view a cessation of hostilities on some terms. Conse- quently for a time services are rendered at a loss. Struggles between natural monopolies are warlike. The time is too short to allow me to describe natural monop- olies and to show why certain pursuits must be monopolies. That I have done~elsewhere. I will simply enumerate the more important natural monopolies gas supply, water sup- ply and electric lighting, street railroads of all kinds, steam railroads, telegraphs, telephones, all public roads, the express business. These businesses never can be conducted except as monopolies, and any phenomena which appear like com- petition are temporary and illusory. The gas business serves well as an illustration. I suppose competition has been tried over a thousand times, very likely two thousand times, and it NATURAL MONOPOLIES, 257 never has yet been permanent, and it can be demonstrated, almost mathematically, that it never can be permanent. It is easy to explain a thing after it happened, but it is often said to be the test of the correctness of a scientific theory to predict that a thing will happen. Now, during the gas war in Balti- more, while we were receiving ga? for fifty cents a thousand, I told my classes repeatedly that it could not last many years, and that all the agreements of the companies not to consoli- date, of whatever nature they might be, like all laws and constitutions forbidding consolidation, were not worth the paper on which they were written. In the same way, on strictly scientific principles, when nobody in Baltimore be- lieved it, I predicted the consolidation of the Baltimore and Ohio Telegraph and the Western Union, and even ventured to print my prediction. I was willing to stake my reputa- tion as a political economist on its accuracy. Well, you all know what happened. So now I am ready to predict that in most places we shall witness a consolidation of private electric lighting and gas companies in a few years. Indeed, this has already begun. Certain monopolies are local in their nature, e.g. street cars, electric lights, gas supply, water supply, and for these I favor the principle of municipal self-help, as opposed to the perpetual interference with private corporations which render these services. There are two principles, one of which must bejviolated in these matters. One is the "keep-out" principle; the other is the "let-alone " principle. The keep-out principle means that government should not perform industrial functions. The let-alone principle means that government should letjprivate parties manage their own business in their own way. Now I believe in this let-alone principle. Its violation brings about an intermingling of private and public interests which is most 258 PROBLEMS OF TO-DAY. demoralizing, and which is to-day the chief cause of corruption in public life. The keep-out principle can be violated with greater_safety. I say then that cities should pursue a policy looking to the ultimate ownership and management of all local monopolies. In other words, for these pursuits I favor the principle of co-operation, for that is what governmental in- dustrial enterprises mean. The people .set together and accomplish certain results. Let us call this form of activity co-operative self-help. Of course you all know that ajljjpv- ernment enterprise is frequently condemned as paternalism, but those who designate it thus have failed to grasp the fun- damental idea of modern democracy and have never become true Americans. We see lingering on in the minds of these timid people European traditions. When the Czar of Russia is gra:iousl^^leased__to construct a^railroad for his people, you may call that beneficent paternalism ; but when the peo- ple of an American town meet together and resolve that \ rather than be dependent *on\ a private corporation for light, they will, in their organic capacity, construct _their_ own elec- tric lighting or gas works, this is a noble form of co-operative tself-help. The arguments on the subject o? natural monop- olies bring this out clearly. Those who favor private under- takings do so because they accuse the people of incompetence. I have in mind the introduction, of .water works in a certain village where the enterprise was most successfully inaugurated, and where it has been admirably managed ever since by the village authorities. It was opposed by some citizens on the ground that the people collectively were too dishonest and inefficient in managing their own affairs. The arguments, when analyzed, all insulted the character of the citizens of this village. Now that the water works have been introduced by the village for a good deal less than any private corpora- tion would have charged, and now that the annual charges NATURAL MONOPOLIES. 259 for use of water are only about forty per cent, as much as pri- vate corporations usually charge under similar circumstances, I call this a triumph of the principle of municipal self-help. The system of public ownership ot natural monopolies relies on self-help. It gives continuous opportunity for self- help, and calls out energy and self-reliance. If publicly owned water works or gas works are not well managed, an opportunity exists for citizens to correct mismanagement by workjng ^together for a better and purer administration. If the works are private property, self-help is out of the ques- * tion, and apathy and indifference are the results which can v vvt^ be observed readily in our cities. Under the system of pri- 0-Urvt vate ownership, the only help is childish complaints, and humble supplication to corporations, as when the farmers of a Maryland county, where toll roads owned by private cor- porations are found, paraded through the country with banners inscribed : " No improvements, no tolls," and the like. Complaints are ineffectual, and toll roads privately owned are poor far poorer than your publicly owned roads in New England. 1 By the way, in the South toll roads pre- vail, and in the North free public roads. Has any one ever observed that the poor southern roads have developed energy and self-reliance in the South, or that your far better public roads have weakened the New England character ? On the contrary, your roads are a proof of your capacity for self- help. HOW THIS IS CONNECTED WITH TAXATION. This is most intimately connected with local taxation. One of two methods may be pursued, i. These monopo- 1 I am told that the toll roads of Kentucky are good, but as might .naturally be expected, this fact renders the public administration of 260 PROBLEMS OF TO-DAY. lies may be worked for a profit, and by profit taxes may be reduced; or, 2. Charges may be reduced, and increased general prosperity will furnish a more plentiful source of taxes and thus allow a reduction of the tax rate. Enormous waste is thereby obviated. Baltimore again furnishes an illustration with which I must content myself, although 1 could give a thousand. I suppose we have had six or sever' attempts at competition in gas supply. Our streets are full, of gas mains. Now all these different plants must be paid for, and every time a consolidation takes place fixed charges and capitaJ^stock have both been increased. The result is that it does not now appear to be a very profitable business for our private company to supply gas at $1.25 a thousand, the rate fixed by the legislature, although it can be made and sold at a profit for 37 cents. I say it can be done, because it is done in the city of Philadelphia, parties supplying the city with gas at that figure. 1 IT WORKS WELL IN EXPERIENCE. Some of you may whisper to yourselves " theory." But I do not confine myself to theory. Natural monopolies owned and controlled by cities always work well, and you may search the world over for an exception. This is one_of Jthg. few rules without exception. You may mention Philadelphia's gas works to me as a proof to the contrary, but Philadelphia roads in that commonwealth weak and ineffective. People have learned to rely on private corporations instead of doing things for themselves. 1 Philadelphia owns its own gas works, but the demand for gas increasing rapidly, the city contracted with a private corporation tu furnish a certain amount of gas, delivered in the city receivers, for 37 cents a thousand ; of course it costs considerably more to deliver it tu consumers, but there is reason to believe that the private corporation NATURAL MONOPOLIES. 261 I regard as a proof of the excellence of the practice I com- mend. Where municipal gas works have been worse man- aged than anywhere else, the citizens have fared better than we have in Baltimore or than the citizens in New York under private_w.Qrks, and it is the best citizens of Philadelphia who insisted that the gas works should remain city property when the gas trust expired a few years ago. In other words, the worst instance of municipal works has proved better than ordi- nary private works, and probably less demoralizing politically. Other instances of gas works owned and operated success- fully by the city are Richmond, Va., Alexandria, Va., and Wheeling, West Virginia, where the city is supplying gas at 90 cents a thousand and making profits which go to reduce taxes. The experience with electric light is still more striking. Bay City, Mich., Lewiston, Me., Madison, Ind., and Dunkirk, N.Y., are supplying electric lights of 2000 can- dle-power each, I believe, for about 13 cents a night, where- ' as cities are paying private corporations from 40 cents to 65 cents. Sixty-five cents is, I believe, your rate in Boston ; just five times as much. I wrote some time since to the mayor of Dunkirk, N.Y., to find out how they were succeed- ing with this experiment, not that I had any doubt as to the matter, for I hold that cities are always more success- ful in supplying themselves with electric lights or gas than in hiring this service of private corporations, and that their success is due to economic laws closely resembling laws of nature. Here is the letter of the mayor, which is accompanied with a detailed statement of cost : makes a large profit on its contract. This is water gas. The coal gas manufactured by the city itself cost somewhat less than $i a thousand, delivered to consumers. The city charges $1.50, and the balance is profit. The cost to the city is too high, but it has been reduced over twenty-five per cent, within a few years, and the management is rapidly improving. Much could be written on this topic were not space too limited. 262 PROBLEMS OF TO-DAY. " MAYOR'S OFFICE, -Professor R. T. Ely: DI-NKIRK, N.Y., Dec. i, 1888. " The cost of each arc light per night running all night and every night is 13^ cents. Enclosed I send you a detailed statement of same. The capacity of the arc light is 2000 candle power and they are fifty-five in number. The system is the Western Electric of Chicago, and we claim we are having better results than they are having at Erie or Buffalo. 1 We are greatly pleased with our system. Our plant complete cost $i 1,025.31. This includes two Rice engines of lifty horse-power each, two dynamos of thirty-five arc lights each, and all the necessary apparatus. The length of the line is about eleven miles. In order to make sufficient room for the plant in the water-works building, an addition was made at an expense of $1630.50, making the total cost of plant and building $13,338.71. > You are aware our city owns and operates its water plant, and the grealsaving comes from the city's owning and operating both plants. No extra labor is required but a lineman, for whose services we pay $45 per month. The same engineers, fireman, and superintendent operate both plants, and the same boiler power is used. I saw the superintendent this morning after the receipt of your letter, and he assures me the cost per night can be reduced below 13^ cents. 2 If I can be of further service to you, please write me. Very truly yours, " WILLIAM BOOKSTAVER, Mayor" The superintendent's report gives the details. Private parties cannot render the service so cheaply, as I know from a friend engaged in the business. There are many reasons why cities can render this service more cheaply, into which I cannot enter at this moment. I hear it said here in Boston that a reason urged for paying the outrageous 1 Where a private corporation operating the same system receives 1 45 cents. 2 I saw the mayor in August, 1889, and he told me that the cost had then been reduced to ten cents. Naturally he was enthusiastic over the results. NATURAL MONOPOLIES. 263 price which you do, viz. 65 cents per arc light per night, is the large territorial extent of your city. This is not valid. If your city covers a larger area than a city like Dunkirk, N.Y., or Lewiston, Me., the number of lights increases in proportion, and the cost per light ought not to be greater. Dn the contrary, it ought to be smaller, because a business like electric lighting is much more efficiently and cheaply fnanaged on a large scale than on a small scale. The same men can manage a large plant as well as a small one, and 323,236 17,821,530 1874-75 10,124,661 5.652,033 15,776,694 2,132,787 I >343-639 19,253,120 1875-76 . . 10,883,282 6,350,714 17,233,996 2,287,359 1,452,180 20,973.535 1876-77 . . 11,232,704 6,561,930 17,794,634 2,402,347 1,529,162 21, 7.26,143 1877-78 . . 11,392,098 6,700,504 18,092,602 2,490,776 1,588,489 22,171,867 1878-79 . . 11,592,899 8,830,019 20,422,918 2,477.003 1.559.854 24,459,775 1879-80 . . 12,392,996 9,854.566 22,247,562 2.704.574 1,595,001 26,547,137 1880-81 . . 13.456,555 11,176,459 24,633,014 3,042,291 1.736,677 29,411,982 1881-82 . . 14,204,479 12,071,034 26,275,513 3.207,994 1,862,354 31,345,861 1882-83 . . I4.554.oi5 12,374,707 26,928,722 3,244,202 1,919,102 32,092,026 1883-84 . . 14,920,413 12,686,433 27,606,846 3,299,428 1,936,846 32,843,120 1884-85 . . 15,195,618 i2.93 >376 28,125,994 3,257,546 1,894,919 33,278,459 1885-86 . . 18,029,008 15,081,433 33,110,441 3,812,173 2,223,669 39,146,283 1886-87 . . 24,044,077 18,276,108 42,320,185 5,106,774 2,816,680 50,243,639 1887-88 . . 26,052,717 18,872,554 44,925,271 5,430,623 3.047.53 1 53,403,425 1888-89 28,269,130 20,263,539 48,532,669 5,991,223 3,241,455 57,765>347 The figures for each year since 1877-78 include the number of certain Press Tele- grams not previously included in these Returns. Prior to 1883-84 the returns were made to the end of the last complete week in the year. Since that time they are, in each case, to the last day of the year inclusive. On the ist October, 1885, the minimum charge for an inland telegram was reduced from one shilling to sixpence. LABOR MOVEMENT IN AMERICA. By RICHARD T. ELY, Ph.D., LL.D., author of " Problems of To-Day," " Social Aspects of Christianity," "Socialism and Social Reform," etc. I2mo. Price, $1.50. " The best -work on the subject" North-]b'estern Presbyterian. '' The review of the labor organizations in this country from the year 1800 to 1886 is a masterly presentation, and will justify even a poor man buying the book." The Beacon. " Every intelligent reader in the country will find the book most useful." Si. Louis Republican. " No one who wishes to understand the problems of labor and capital can afford to be without Professor Ely's work." Rochester Chronicle. " Professor Ely's volume deserves the careful study of manufacturers and employers of labor especially. It deals with well-authenticated facts more than theories a remark- able and timely book." Boston Traveller. " Heartily commended to the careful attention of all concerned in the labor question, whether employers or employed." 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